Consolidation, more consolidation and statistics

Momodou Musa Touray – Artwork by Dan Murrell

You’ll be forgiven for thinking it’s the Roaring Twenties in the consulting industry. Not a week goes by without a big budget consolidation deal.

Headline-grabbing M&A news is flooding our inboxes here at Money Marketing. It is surely good for the profession.

Independent financial advisory firms looking to sell are taking advantage of the consolidation boom and are in a better position to demand more money from buyers. They can play groupers against each other. As someone rightly pointed out, the industry has gone from a buyer’s market to a seller’s market.

For many ACIs, it’s not all about the money. Some just don’t want to “fuck” their loyal customers and staff, as the saying goes.

And, due to increased IFA sales, we are seeing vendors and private equity return to the wealth advisory space. Insurance giant Aviva recently bought National IFA Estate Wealth for a whopping £385m.

The purchase caused a stir in the consulting industry. I was at a group of advisors fireside chat on the day of the announcement and the acquisition of Succession dominated the proceedings.

Many believed the deal reflected a strong market trend that would continue to grow as consolidators step up the advisory process. They argued that product providers were looking to own distribution channels to access the growing demand for financial advice.

The consolidation train is running full steam ahead and there’s no sign of it slowing down

Needless to say, there is an advice gap that continues to grow at an alarming rate. Recent data from Royal London showed there were 3.7 million unadvised consumers with more than £185 billion in unadvised investable assets. This is a demographic waiting to be exploited.

Intervention welcome?

Any intervention aimed at providing advice to as many people as possible should certainly be welcome. As Aviva said when acquiring Succession, the deal will help it break into the advice market for the affluent masses.

“We try to offer advice to existing Aviva customers who don’t have an advisor,” said Doug Brown, managing director of Aviva UK and Ireland Life. Money Marketing. “We recognize that we have a large customer base that could benefit from financial advice.”

Only 9% of consulting firms expect to be part of a consolidator within the next five years

Other consolidators are upping the stakes with their own megabuck purchases. As of this writing, Fairstone has completed over 50 acquisitions and counting. Morningstar bagged beloved platform Praemium, and Abrdn acquired online fund store Interactive Investor.

Business is booming. This is due to the UK platform’s record earnings last year. Data from investment firm Fundscape showed the platform’s assets rose 19% to £930bn. And gross sales topped £20bn for every quarter in 2021. The windfall was achieved despite the challenges of the pandemic and other economic uncertainties.

However, not everyone wants to board the consolidation train. Some advisors have expressed concerns about the motivations of these large companies and the impacts on client results. They argue that consolidators’ priorities are recurring revenue and the aspiration of assets under management.

We are seeing the return of providers and private equity to the wealth advisory space

Others worry that the return of large companies or distributors could roll back gains made since the retail distribution review. They argue that providers may opt for a centralized investment proposition which would not be good for clients or advisors.

As this year’s Lang Cat State of the Adviser Nation study shows, only 9% of consulting firms expect to belong to a consolidator within the next five years. And more than half of advisors (65%) say their business won’t be bought during this time.

For many ACIs, it’s not all about the money. Some just don’t want to “fuck” their loyal customers and staff, as one advisor put it bluntly.

Any intervention aimed at providing advice to as many people as possible should be welcome.

“I didn’t want to destroy our identity and our culture that we have built for a long time. I didn’t want to put people’s jobs at risk. And I didn’t want to impose an investment proposition on clients to get a bigger payout,” says Kevin Ferriby, managing director of Informed Financial Planning.

Regardless of the side of the fracture, the consolidation train is in full swing and there is no sign of it slowing down anytime soon.

Momodou Musa Touray is a journalist. Contact him at: [email protected]

This article appeared in the April edition of MM. To read the full digital magazine, click on the image below.

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