Bringing you live news and features since 2006 

Consolidation in the wealth sector creates opportunities, says Progeny Wealth

RELATED TOPICS​

The UK financial landscape is currently providing a fertile ground for Mergers and Acquisitions (M&A) in the wealth management sphere, writes Alex Shaw, (pictured) director, Progeny Wealth. “A wide variety of features have come together to provide a unique situation that is proving to be highly tempting to investors, both domestic and foreign. This environment has come at an excellent time, falling in line with a global increase in M&A activity within the sector, placing the UK at the forefront of continued expansion. 

The country-specific factors can be summarised in three key ways: recently introduced pension freedoms, low interest rates and continued strength in the property market. These factors all serve to increase the desire among the public to invest their wealth using more complex methods to get the most from their capital.
 
Low interest rates clearly effect the prospects of funds stored in traditional investment locations; current accounts, ISAs, etc. This initially serves to make the simplest avenues of capital investment less attractive by limiting the returns that an individual can expect to see. This is having a particular impact on baby boomers, who are no longer seeing returns on their interest payments that will allow them to see out their retirement in the manner they expected.
 
Pension freedoms are allowing more people to utilise capital in a way that was previously unavailable with such flexibility. A number of these are likely to be individuals with little investment experience, pushing them naturally towards wealth managers as the professionals best suited to assist them with their newly acquired wealth.
 
The property market remaining strong ensures that it remains an attractive investment for those with the necessary funds. However, investments of this size require expertise and knowledge beyond most of the general public. Therefore, wealth managers are more desirable due to their expertise in investments, ensuring that individuals invest in the most effective way to see a return on their funds.
 
The above factors serve to boost the wealth management industry in the UK, explaining the growth in the sector. This does not, however, entirely explain why the industry is going through such a boom in M&A activity. To establish this, we must examine recent changes in legislation.
 
Foremost among these is the Retail Distribution Review, which markedly effected the manner in which fees can be charged by financial advisers. Rather than accepting commission as a reward for recommending or selling a particular financial product, advisers now have to agree a fee up-front. This forms a major part of the increasingly strict regulatory framework.
 
In addition to the regulatory environment, there are an increasing number of disruptive start-up companies – such as Nutmeg and Scalable Capital – utilising digital tools to cut out the need for wealth managers altogether. This places clear pressure on the cost structures currently in place in traditional firms, necessitating cost-saving measures. These factors have served to create an environment in which economies of scale and the acquisition of particularly lucrative skill-sets make small wealth management firms merging to form larger firms the natural decision.
 
The fragmented market in the UK is naturally vulnerable to the changes wrought by technology, and the need to decrease the percentage costs of overheads is driving medium-sized firms to seek mergers with smaller firms. This enables the larger firm to benefit from the economies of scale, improving margins and allowing the firm to work more efficiently.
 
From the perspective of smaller firms, the pressure applied by others to merge will be harder to resist. The above factors have conspired to reduce the capability of smaller firms to successfully handle the scale of business required to achieve a level of efficiency that is profitable.
 
Indeed, figures recently released by the Scorpio Partnership Consultancy support these trends. While the number of mergers increased to 124 in 2015 from 83 in 2014, the value of assets transferred in these deals decreased to USD410 billion from USD460 billion. This suggests that, rather than the focus being on big-money deals, medium-sized firms are attempting to consolidate their hold in the market by hoovering up slightly smaller firms. When AXA Elevate were purchased by Standard Life, the latter saw an increase in market share and improved brand reputation, but were also able to capitalise on the cost reductions driven by economies of scale.
 
The individuals employing a wealth manager, however, are far more likely to worry about what the potential impact of any mergers will be on their personal experience. This is especially true in situations that see their wealth manager move on as part of any M&A activity. While the initial instinct may be to move on with your manager, particularly if they have been successful with your assets, it is always prudent to take the time to consider the bigger picture.
 
Mergers can often result in reduced charges, a wider variety in fund choices and increased contract flexibility. However, if you believe the success you had at your firm pre-merger can be attributed the the skills and knowledge of a, now absent, individual or group it may well be the best option to follow them to their new firm.
 
The current strength of the UK market, then, is both driving more people to retain wealth managers and providing them with difficult decisions to make if their firms are involved in a merger. For those in the industry, however, increased M&A activity is consolidating a fragmented market and presents an opportunity to increase profitability.”
 

Latest News

HSBC Asset Management’s (HSBC AM) ETF and Indexing business has passed USD100 billion in assets under management (AUM), reflecting its..
Amundi’s ETF Market Flows Analysis for April reveals that investors added EUR54.1 billion to global ETFs in April with equities..
VanEck has reached USD10 billion in assets under management in Europe for the first time in April 2024...
Global index revenues increased 9.3 per cent in 2023, totalling a record USD5.8 billion, according to a benchmark study published..

Related Articles

Dan Miller, IQ-EQ
With just over a week to go till T+1 settlement begins in North America, Canada and Mexico, time is of...
Emily Spurling, Nasdaq
Last October’s ETF Express US Awards 2023 found Nasdaq winning Best Index Provider – ESG ETFs and Best Index Provider...
Vinit Srivistava, MerQube
Index provider, MerQube, launched in 2019, with the aim of providing a “technology-driven answer to the most complex, rules-based investment...
Sean O' Hara
Pacer ETFs has announced the launch of three Cash Cows UCITS ETFs. The firm writes that this will give European...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by