Merger & acquisition activity among UK financial advisers has risen to record highs over the past year, driven by private-equity backed ‘consolidators’, according to new data from law firm Mayer Brown.
The number of M&A deals rose 11% from 398 to 440 in the year ending 30 September 2022, as PE-backed consolidators seek to build major platform businesses in the sector, the group said.
The market for independent financial advice remains highly fragmented, with thousands of small firms and self-employed advisers. Mayer Brown said such a large degree of fragmentation lends itself naturally to consolidation which can deliver significant economies of scale and allow PE-backed firms to invest more heavily in technology and other customer-focused initiatives.
Larger firms can also get better access to a broader range of investment opportunities for clients and benefit from lower rates on professional indemnity insurance.
Mayer Brown said another key driver of consolidation is the increasing compliance requirements of the sector, with smaller firms often lacking the management time and other resources to achieve compliance with the FCA’s incoming Consumer Duty regulations.
Frequent targets for M&A deals include older advisers looking to exit their firms to fund their retirement, with 17% of advisers over the age of 60.
James West, partner at Mayer Brown, said: “Given the fragmentation of the sector, IFAs were ripe for consolidation. This has been going on for a number of years and shows no sign of slowing down yet.”
“Signals still point to even further consolidation in the year ahead. There are still a large number of advisers contemplating selling their firms to fund retirement. The increasing regulatory burden and the difficulties of scaling a small IFA firm will make selling to a consolidator an attractive exit option for some of them.
“Given the greater resources and improved technology which IFA platforms can bring, the trend towards greater consolidation can be seen as a positive for the sector overall including, most importantly, the customers of these IFAs.”
