A new survey has revealed that nine in 10 (90 per cent) independent financial advisers (IFAs) and financial planners believe there will be an increase in M&A activity in the financial advice and wealth management sector over the next five years.
Consolidation has been intense in the industry for several years now, driven by factors including growing private equity involvement, a large population of owners approaching retirement age and a heavy regulatory burden facing smaller firms.
Despite this, the market remains fragmented, with strong scope for ongoing M&A, and the new survey from Investec Wealth & Investment (UK) has indicated that the vast majority of industry professionals expect dealmaking to continue.
The study, which polled 100 IFAs and financial planners across the UK, found that around a third (32 per cent), expect a dramatic increase in activity in the next five years, compared to just 10 per cent of respondents who expect M&A to remain at the same levels.
76 per cent of respondents felt that consolidation going forward would be driven by smaller IFAs and wealth managers not being able to evolve in the face of changing client needs. 52 per cent cited the fact that smaller firms are finding it increasingly harder to compete and are also facing growing operating costs.
47 per cent felt that the growing importance of a company’s brand and being part of a larger organisation would also fuel activity.
Simon Taylor, Head of Strategic Partnerships at Investec Wealth & Investment (UK), said: “The wealth management sector has already undergone rapid change, with high volumes of M&A activity, but this trend only looks set to increase.”
“Smaller adviser firms are finding it increasingly difficult to compete with larger, more well-known brands, and combined with rising business costs it’s likely that many more will consolidate in the coming years.”
The survey also revealed that, with technology helping to reduce running costs, advisers are now more able to take on clients with a lower value of investible assets than was required five years ago.
On average, Investec found, the minimum value of investible assets required for an IFA to work with a client is now £177,250, down from an average minimum value of £209,250 five years ago.
Taylor commented: “More positively, technology is also enabling firms of all sizes to take on more clients with lower average values of investible assets. Having the right technology, products and services available to IFAs and wealth managers enables them to build stronger client relationships, win new clients and reduce the admin burden currently experienced by so many in the sector.”
Read more on M&A trends in the UK's wealth management sector
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