Mergers and acquisitions continue to drive change in the financial advice industry, says NextWealth, but the focus is upon consolidation not aggregation.
According to NextWealth’s Consolidators and Aggregators Report, mounting pressure on firms to boost revenue and profit has led more firms to look to consolidate assets to in-house investment solutions and in some cases, platform/custody solutions.
Heather Hopkins, managing director of NextWealth (pictured), said: “This is leading to the death of the aggregators model, meaning it’s less likely that acquired firms will continue to use their previous investment and platform solutions.”
The report shows a rapid tailing-off of acquisitions since the start of 2024 but NextWealth believes there are a significant number of deals waiting to be announced over the next few months.
Hopkins said: “Since the beginning of 2021 there have been over 300 announced deals. While the pace of acquisition increased from 2022 to 2023, it was not as substantial as previous years. However, many major acquirers told us they have healthy acquisition pipelines with a number of deals under way.
“Fresh PE investment in some acquirers is also a vote of confidence in the model. From what we’ve learned from our latest research, our estimates suggest the pace of consolidation will remain about even with 2023.”
NextWealth said integration is one of the most cited areas of friction for acquirers. While some firms are employing technology specialists to data mine the systems before new processes and operating structures are shared with advisers and operating staff, Hopkins warned that this can result in friction, additional cost and a lengthening of the whole process. Additionally, training advisers to use systems also adds additional costs and time.
The report also looked at the issue of regulation in the wake of the Consumer Duty. The new requirements have contributed to the rise in firms looking to sell, says NextWealth.
Hopkins said: “The impact of Consumer Duty is only beginning to be felt. The recent news that SJP was setting aside £426mn for potential client refunds for clients that complain about not receiving on-going advice has been a stark reminder to consolidators of the risk in their books.”
Hopkins added: “Without a doubt, M&A activity is changing the shape of financial advice. Historically, acquirers have looked to firms where owners wish to exit. However, increasingly, acquirers are looking to retain existing senior management teams after acquisition and keep advisers, staff and clients in place to drive business growth.”
