Expert: John Chapman, Catalyst Partners Ltd Facilitator: Roderic Rennison, Catalyst Partners Ltd
Headlines:
- The acquisition market for IFAs and wealth managers is huge
- It is a market which is currently estimated to be as large as £1.9trn
- The number of acquirers in the market is growing
- There are now estimated to be circa 158 buyers in the market
Discussion Points:
The wealth management market is complex in structure, and IFAs/ Financial Planning firms have become the dominant sector over recent years, especially following Retail Distribution Review (RDR). They have taken some of the wealth managers’ and private banks’ share.
Investors with less than £100,000 are now largely unserved as wealth managers and banks often now have a minimum client size of £500,000. IFAs have also moved up the scale with minimum client sizes of £100,000 and increasingly over £250,000.
Small firms still dominate wealth management and it is a fragmented market - 89% of firms now have five or fewer advisers.
Over 45% of firms have only one adviser, and another 44% have between two and five advisers. Circa 8% of firms have between six and 50 advisers, with circa 2% having over 50 advisers.
The number of firms overall is falling slowly, and the number in 2020 using FCA figures is now just over 5000.
It is estimated that there are now 35 Private Equity backed businesses of which 23 have been in place for two years or less.
Professionalism, profitability, and size of individual investor are all improving, while the RDR changes have improved professionalism.
Profitability has increased driven by a combination of technology, improved processes, and better training.
The size of individual investors has increased with IFAs now, on average, having clients with larger levels of assets.
PE finance is active in supporting consolidators alongside Private Equity.
There is likely to be a squeeze on profits due to rising costs due to inflation and staff costs which could impact on margins - unless customer pricing can be increased.
There is also as shortage of staff and advisers, though some firms have set up adviser academies to address this.
The consolidation end game may be more IPOs and/or sales to providers rather than PE houses selling to one another.
The sector is attractive because it provides acquirers with access to clients Vertical integration and changes in the value change have resulted in some participants being further removed from the clients
One consequence is that product providers and DFMs have decided to buy distribution i.e., IFAs, and the recent acquisition of Succession by Aviva is an example.
Key Takeaways:
- Demand is likely to continue to outstrip supply for the foreseeable future
- Acquirers are becoming more knowledgeable and discerning
- Valuations for quality firms are likely to remain high
