Why wealth management firms have started merging

Even with more deals carried through the amount of assets transferred in, these deals has fallen over consecutive years – from a figure of $780bn in 2013 (generated by just 100 separate deals), through $460bn in 2014 to $410bn in 2015.

Drilling down into the figures in this manner would tend to indicate that the bulk of M&A activity is being driven by medium-sized companies taking over smaller rival companies, a fact which is, in itself, reflective of changes in the overall wealth management landscape and the ongoing positioning of the UK as a massively appealing market. 

This activity has led to a surge in foreign interest in what is seen as the uniquely lucrative UK offer; low interest rates, the recent pension freedoms and continuing strength of the UK property market have all combined to make particularly appealing targets of UK-based firms. 

However, on the opposing side of this equation sit factors such as increasing regulation and the pressure placed on pricing structures by a growing focus on technology and digital tools. This all comes together to make an increase in scale, and the resulting economies driven by this scale, fairly hard to resist. This means firms working under £5bn range have struggled to manage, making offers from larger firms more appealing. 

Read more about the world of M&A:

• M&A is booming globally – but why are UK companies left out?
• Acquisitions are like sex and driving – most people think they know what they’re doing
• Deal uncovered: Inside look at the Unruly acquisition by News Corp

A recent example is Société Générale’s acquisition of Kleinwort Benson. By combining the latter with its’ own private bank, Hambros, Société Générale created a wealth management arm with control of £14.2bn in assets. 

Most of the recent activity falls under this category with large or medium-sized firms seeking to become larger, overseas firms targeting the UK and private equity companies seeking to boost their portfolio and increase activity. 

For larger companies, opting for an M&A is a simple, practical choice. For example, when Standard Life purchased AXA Elevate, the motives would have been nothing more or less than an increase in market share and brand reputation allied to cost reductions driven by economies of scale. 

In other cases, one company might acquire another company with the express aim of purchasing a ready–made provider of wealth management. This then allows access to a lucrative and growing sector of the market place without the expense and delay normally associated with creating expertise from scratch. 

For those individuals faced with a situation in which their wealth management firm or firms are merging, they will naturally care much more about what impact this will have on their own individual wealth management, particular if their wealth manager moves as part of the M&A, as opposed to the overall value of such a move to the shareholders of the firms involved. 

The financial landscape of the UK is finding an increasing numbers of people seeking the advice they need to make the most of their liquid and other assets – one where the right wealth managers can be regarded as an increasingly profitable source of growth and revenue. This is true with regards to the fees which can be charged following the imposition of the Retail Distribution Review. 

The first instinct may well be to follow the wealth manager but the prudent advice is always to take the time to look at the bigger picture. Yes, a valued advisor may have been replaced, but time spent seeing whether this actually has a detrimental effect, or whether it is indeed outweighed by the benefits driven by the M&A, will prove to be time well spent. 

In many cases the M&A may produce positives such as a reduction in charges or an increase in fund choices or contract flexibility. In the case of a change of fund manager, the situation can be more nuanced. 

If the success can be attributed to the performance of a specific, and now absent, individual or group of individuals, then the time may well be right to either follow that individual or seek out an alternative solution. 

Alex Shaw is director of Progeny Wealth. 

With RIT Capital Partners announcing it has walked away from a potential £5bn merger with UK rival Alliance Trust, it now joins a long line of M&A deals before it, both public and private, which have collapsed late in the day.

Image: Shutterstock

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