Is M&A the answer for wealth manager expansion?

Growing a wealth management company in today’s competitive market can be tough. Could an acquisition be the answer?

Is M&A the answer for wealth manager expansion?

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In the past few quarters there has been a flurry of movement in the wealth management space, as firms seek to develop their businesses and remain contenders in an increasingly competitive post-RDR environment.

Old Mutual Wealth, Brown Shipley, Thomas Miller Investment, St James’s Place, Brooks Macdonald, European Wealth, Bellpenny, Hawskmoor and Towry have all been busy either acquiring businesses, recruiting staff or establishing new footholds from scratch – and in some cases an amalgamation of all three.

However, it is not just about building the brand, explains Steve Gazzard, chief executive of the Institute of Financial Planning. There is also the need to move with the times while remaining cost-effective.

He says: “If you are producing something that can be done from afar you are at risk of being usurped by value propositions on a cost basis. It is difficult to envisage a professional business that does not have the capability of ongoing face-to-face delivery.

“People increasingly want ‘roboadvice’ and wealth managers need to decide if they are going to reduce income as efficiencies come in or move up the ladder to a higher-value proposition.

If you have clients around the country, you need to establish those local businesses.”

These points are widely acknowledged in the industry, as evidenced by the number of firms implementing expansion drives. This leads on to the next fork in the road: once firms have decided to cast their nets into the pools of wealth dotted around the country, how should they go about it?

Building blocks

European Wealth, a firm that in five years has gone from germination to more than £1bn in funds under management, has both completed acquisitions and built offices from the ground up.

Although chief executive John Morton sees the benefits of each approach, for him it is the instant cashflows and established client base that gives M&A the edge.

“The plan is to grow the company by acquiring businesses as well as bringing in experienced people,” he says. “Once everything is consolidated, firms have the financial planning team and the investment management team in the same office, which is a stronger offering for clients.

“Acquisition is a good way of building the business relatively quickly, as it has the distinct advantage of generating cashflow from day one.”

As head of Quilter Cheviot’s Manchester branch, David Rothburn has first-hand experience of being the acquiree, most recently when Old Mutual Wealth bought the firm for £585m in February 2015.

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