The UK is the most important wealth management market in Europe but far less concentrated than its European counterparts, attendees at consultant Synpulse's Third Senior Executive Forum heard.
Chaired by Synpulse associate partner Daniele Concari, panellists Giovanni Amodeo, global editor in chief and head of research at Accuris; Eric Moe, partner and chief operating officer at Whitefoord and PAM Insight's very own group editor Tristan Blythe were invited to share their opinions on consolidation of the wealth management industry in the UK.
Mr Concari stated that while the UK's leadership in wealth management is "undisputed", some consider it to be fragmented due to the number of players that make up the market.
For Mr Moe, firms can not necessarily grow organically due to the challenging nature of the industry including a "shrinking pool of clients" and regulatory hurdles, in which case M&A activity is an option.
"Over the last six or seven years Whitefoord has completed over five acquisitions mostly due to RDR (Retail Distribution Review) and the opportunities that it presented. We know that we will either be acquired or continue acquiring," he said.
Citing statistics, Mr Amodeo observed that M&A activity has consistently dropped across the world. For example, he stated that in Europe last year there were 110 deals compared with 42 this year. In the US, 2016 saw 88 while 2017 saw only 45 and in the UK this year 12 deals were completed compared with 40 in 2016.
He commented: "People are scared of making the first move and we should be analysing the reasons why in more depth."
Mr Blythe agreed that although there have been a number of deals over the last year it has not been at the same rate as in the past two or three years. He pointed to regulation such as MiFID II which have perhaps taken the attention away from M&A as well as "some of the most obvious deals" having already been done.
However, he added: "I remember when I first started covering the sector 11 years ago, every chief executive was interested in organic growth and acquisitions weren't on the table. Today you can ask the same people and they would at least consider any option that came across their desk so there has been a change in attitude."
In terms of fragmentation of the market, Mr Blythe noted that there are many different types of firms within wealth management from private banks to investment managers and financial planners offering a range of services which could possibly be an explanation.
When questioned on the possible drivers of consolidation in the years to come, Mr Moe cited costs as a major factor as well performance: "In our world it's all about performance, that's what make clients happy. We are very much focused on performance but also understanding which services we want to continue to provide and those that clients aren't really interested. It creates issues when you're looking to acquire or merge as there are cultural differences."
Mr Amodeo considers performance "to be a given" whereas the quality of service should be looked at further. "Clients want to be reassured that the service is excellent after M&A activity," he said. "If it isn't they are going to go for other options such as passive management. It's about perception."
Mr Blythe cautioned that when looking at potential firms to acquire, "you can't just buy someone who's doing something completely different to what you're doing".
Furthermore, he argued that robo-advisers and fintechs could be potential acquisition targets as building up technology as well as brand is expensive and already established firms "would love to have their capability."
With cost as a possible motivator for M&A activity, Mr Concari asked panellists how firms should be priced.
Taking as an example his own firm which provides investment management, consultancy and advice, Mr Moe said that the first is "quite easy to price" in terms of assets with consultancy and advice being less so as it is largely based on client relationships.
"We look at this tripartite as a selling point but the relationship side might be indigestible for a firm purely focused on investment management," he commented.
As a final question, the panellists were asked whether in three years’ time there would be less or more firms within the wealth management sector.
Mr Moe considers consolidation to be "inevitable" and while new technology will bring in new entrants there will be some drop off.
Overall, Mr Blythe stated that there would most likely be a similar number of firms but there “could still be some M&A deals amongst the bigger firms". However, he also noted that for all the talk of consolidation, there are new firms "popping up all over the place" reflecting a lot of entrepreneurialism in the industry which will continue.
For Mr Amodeo, he agreed that the quantity of firms would remain more or less stable as despite consolidation and "mass services", clients still want niche services.