Dimensional’s 2020 Global Advisor Study indicates that financial advisors have strong interests in pursuing mergers and acquisitions, yet need to focus efforts to develop their strategies around M&A, succession, and post-transaction integration.
The 2020 study aggregated data from nearly 1,000 independent advisory firms globally with USD368 billion in combined assets under management (AUM). Fifty seven UK firms participated in the M&A segment of the study, ranging from newly established practices to ensembles with an average AUM of GBP1.4 billion.
Nearly half of the surveyed firms indicated they would like to execute a merger or acquisition over the next 24 months, with most of those firms indicating interest in acquiring. However, the study also found that over 81 per cent of firms lack a defined M&A strategy.
Among the firms that are actively considering M&A, the top four responses indicated that 21 per cent want to be acquired, 19 per cent want to acquire a firm, 9 per cent want to acquire a team, and 11 per cent want to merge.
Some 65 per cent of respondents have been contacted by firms interested in M&A, but only 3 per cent of this subset moved forward with a deal.
A total of 57 per cent of the reported transactions occurred among firms with less than GBP50 million in AUM, which reflects the ongoing focus on partnering with larger, more mature firms to pursue continued growth and succession planning.
Some 18 per cent of firms have a succession strategy in place, indicating that many firms are still grappling with developing a comprehensive plan.
Among all EMEA survey participants, client retention for completed transactions in the last three years was 95 per cent, on average.
The study also indicated advisors’ ongoing focus on finding an internal succession solution. According to the study, the biggest challenges that firms face when implementing a succession plan are identifying a successor (61 per cent) followed by understanding the different succession options (35 per cent). With talent acquisition among the top-five reasons for buying another advisory business, some firms are turning to an acquisition strategy to find potential next-generation talent who may provide a succession solution.
The study highlighted the large number of advisors who are approaching retirement soon and need to consider their succession options. Of the firms that have a documented succession plan, 90 per cent are looking to execute their plans within the next 10 years.
Head of UK Wealth at Dimensional, Martyn Chappell, says: “We have worked with successful intermediaries for decades and understand the special combination of elements that make a successful, client-centric business. The ten years of our global study gives us unique insight, from the sellers’ and buyers’ points of view, into the areas that really make a difference, such as strategic planning, HR, business development and the client experience.”