Wealth Management Firms and Small Lenders Turning to Acquisitions

Wealth management firms are discovering that the easiest way to grow their assets under management is to merge with or buy another firm. Meanwhile, smaller mortgage lenders may soon be turning to M&A in response to a lack of cheap funding from the Bank of England.

Wealth managers hit by pension reforms

Back in 2015, sweeping pension reforms came into play that gave the public more control over their own pension pots. As a result, the demand for financial advice has soared. Which may first seem like good news for wealth managers. However their fees are putting a lot of potential investors off - particularly following new regulations that require wealth managers to be more transparent about what they are charging for their services.

This has left wealth managers increasingly reliant on referrals from financial advisors and the sums they are being asked to manage are more ‘Middle England’ than ‘millionaire’. Therefore, growth has become somewhat hard to come by.

M&A as a pathway to growth

Unsurprisingly, wealth managers are now buying up advisory firms as a way to grow their assets under management. A recent example is the purchase of Ascot-based Fund Management Ltd by Harwood Wealth Management Group for GBP1.1m. Fund Management brings with it some GBP34m of assets under influence and will continue to run itself as a separate firm to Harwood.

It seems that wealth managers who can count financial advisors as operating under their ownership enjoy improved profits. Paul McGinnis, an analyst at Shore Capital told the Financial Times: “Many [wealth managers] are acquiring or buying their own financial adviser businesses instead … Companies are building up their financial planning [businesses]. But those who do risk treading on the toes of the advisers who refer them clients. It is a balance.”

He added that Brewin Dolphin had increased the number of in-house financial advisors as well as launching two specific financial advice services. This was partly possible due to its 2017 takeover of Duncan Lawrie Asset Management for GBP28m. Following its change of focus, the firm reported a 15 per cent rise in profits to GBP57.6m in 2017.

Consolidation is also a major theme within the wealth management sector in response to the changes in the market. After finding it difficult to attract new customers, Rathbone Brothers announced in April that it was looking to buy Speirs & Jeffrey, which would help it to reach its growth target of 5 per cent. Without the purchase it risks missing its target of having GBP40bn of assets under management by the end of the year.

Small lenders also driven to M&A by major policy shake-up

Meanwhile, changes to the way the Bank of England supports lenders has led some analysts to predict a surge in M&A within the sector. The news that Clydesdale and Yorkshire Bank’s parent firm CYBG is looking to take over Virgin Money for an estimated bid of GB1.6bn has prompted Cavendish’s head of financial services, Duncan Chandler, to predict a rush of deals.

He explains that smaller challenger banks are suffering as a result of the removal of the cheap funding offered by the Bank of England. A slowdown in economic growth has also left small operators feeling the pinch. Chandler stated: “We expect a fresh wave of consolidation among smaller lenders to arise as economic uncertainty continues and cost pressures rise and this should be a key trend in financial services M&A over the rest of this year.”

Conclusion

Financial services business owners looking to sell should be aware of these trends and can potentially cash in on the fact that M&A has become a popular means of growth for financial businesses of all sizes. For those looking to buy, on the other hand, now is obviously a great time to acquire a financial services business that can help boost your business at a time when organic growth is sheer hard slog.

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