The consolidators are important players within the financial advisory distribution space

Expert:             James Tothill, Head of Third Party Sales, Aviva
Facilitator:       John Chapman, Consultant, Orion Consultancy Ltd 

The State of Play:

• From the asset managers perspective everything starts on the timeline post RDR where we've seen the market develop into componentry for wealth management solutions and there has been a huge trend in terms of pricing pressure that's manifesting itself in debates around clean share class / institutional share class offerings and pricing structures. In addition, the asset management market study has given a lead to the value assessments and shining a spotlight on transparency of charges. As asset managers get further away from the client and the distribution market begins to consolidate, how do asset managers communicate with distributers and ensure their product solutions are client centric?
• Despite the Lang Cat research stating that around 40% of advisers are still making simple investment decisions, it seems that the growth of Model Portfolios Solutions and Multi-Asset Investments is taking these decisions away from individual advisers to firm’s investment committees or outsourced model portfolio solutions provided, for example, by research houses. If the distribution market no longer wants a plethora of asset management sales managers descending on them to sell specific products, how should these asset management companies interact with advisory firms? 

Who are the consolidators and who is currently acquiring advisory firms? The following table shows those firms that are currently in the market:

 

Type of acquirer	Number	Examples
Consolidators	25	Succession, AL, AFH
Nationals	14	SJP, Tilney
Specialists	12	Mattioli Woods, STM
Private Equity	14
Large Regionals	24	Ludlow, Courtiers
Life Offices/Asset Managers	11	Schroders, Invesco
Wealth Managers/DFMs	31	Rathbones, S&W
Networks	6	Tenet, Openwork
Total	137

 

As the above chart demonstrates, acquirers come in different shapes and sizes and each of these will have different requirements of the asset management industry. 

• Larger firms definitely require a more Chief Investment Officer/Director type relationship with an individual who can provide investment insights and consulting services to the business. Those asset managers that can provide more value-added services are those that will be winners in the long term. There's a lot of specialism and expertise within asset management, who are still struggling how to best articulate to the market how they can add value.
• The majority of consolidators are developing vertically integrated models and it will be interesting to see how that dynamic develops and how asset managers can provide a client centric solution to these vertically integrated solutions at a price that suits both parties. The debate is developing into requirements for either super clean share classes or segregated mandates. There is no doubt that vertically integrated businesses are trying to capture a proportion of the manufacturing revenue and this is one of the major financial drivers of consolidation. Platform costs are being driven down, there are some cost economies of scale on PI cover but other than that, the key financial impact will be taking a margin on the asset management solutions.
• All consolidators and acquirers are looking to drive efficiencies through their enlarged businesses and segregated mandates and MPS services can help by providing API links through to distributers platforms and back-office solutions.
• Asset managers have been lacking in innovation and it’s difficult to see where individual firms add value when there’s many “Me too” products. Where is the differentiation? Traditional asset classes are well served but, how can asset managers provide retail clients with access to non-traditional asset classes e.g. private equity.
• Asset managers need to develop a more consultative and engaging approach and they need to recruit staff that try to understand the distribution business and the type of funds that are needed for the retail client.
• We have seen the end of the push market and the beginning of the pull market and stopped being a marketplace where manufacturers can push generic product into it and it is now a marketplace where because of regulatory and also commercial changes the people at the sharp end, the advisors, are looking to pull capability into their supply chain in order to be able to deliver on behalf of their customers and they don't necessarily want the generic product that fits all circumstances. They don't want the square peg of a generic product to be forced into the round hole of their advice process. Asset managers need to look in innovative ways at building product that doesn't currently exist and that provides the intermediary with the supply chain they require rather than forces a supply chain upon them.
• Advisers want a clear exit strategy. Unfortunately, most consolidators take an IFA business that has a certain shape and force the clients and the business to look a different shape. Advisers would be attracted to a model that is a glide path into a similar business that's going to service their clients in a very similar way with a very similar set of client propositions. Normally, it’s a corporate entity purchasing lots of firms and forcing those firms to engage with their customers to fit the supply chain but, it should be the supply chain that fits the way in which they are engaging with their customers.
• Consolidators do provide some positive attributes to the industry. They provide a source of capital to smaller IFA firms where the principles are looking to retire or return to advise clients rather than mange a business. Moving firms to a consistent set of principles that are collaboratively enforced across the business is a really positive outcome and in doing so changes the market into the future and drives down costs for clients.
• Asset managers need to move away from product pushing and provide a more collaborative consultative approach with distributers. There is a great appetite for advisers and advisory staff to engage in education and any additional support asset managers can provide would be greatly appreciated.
• One of the challenges for the industry is disintermediation of the assets management industry and ultimately the control sitting with the distributors. There is also the rise of the investment research firms that now control a huge bulk of distribution and asset managers need to balance their efforts between understanding the needs of the client and distributer while providing the right level of service and support to the research firms.