Heartwood is the latest boutique to be taken over by a larger firm, after Swedish bank Handelsbanken bought it to gain a foothold in UK wealth management. This follows Rathbones’ acquisition of Taylor Young and Cheviot’s merger with Quilter last year, causing some to ask whether consolidation could cause the death of the boutique.
With JO Hambro Investment Management and Newton’s private client business both understood to be up for sale, many expect more boutiques to disappear as rising regulatory costs and the need for scale cause some owners to sell up, with international and private equity firms eye buying opportunities.
Catherine Tillotson, managing partner at consultancy Scorpio Partnership, expects the trend to continue, but she warns boutique owners will need to be comfortable with lower valuations.
‘Boutiques have got client relationships and strong business models but the challenge is often that they are quite expensive and we have moved into a market where clients have to pay for advice. There is downward pressure on advisory fees, coupled with the cost of compliance, which means in the long term, scale is where we are going to,’ she said.
She estimates the boutique market is currently 150-strong and says the perfect deal for a buyer would be to pay 1% of assets for a firm with around £500 million in assets that are predominantly discretionary. This contrasts with a global average of just under 2% in 2012, according to Scorpio’s research.
Consultant Michael Maslinski expects more boutiques to go, but does not expect this M&A wave to kill the boutique. ‘I am sure more boutiques will be sold, but I don’t think it will be the end of boutiques because more will be established,’ he said.
Meanwhile, Heartwood CEO Simon Lough does not view the takeover of his firm as a sign that more boutiques will get taken out.
‘I don’t think this signals the death of the boutique. If we hadn’t done the deal with Handelsbanken, the next option would be to stay as we were, but I think the better opportunity for us is as part of the Handelsbanken family.
‘Everyone knows that wealth creation is limited at the moment and I don’t see that changing. Heartwood will stay independent within Handelsbanken, everyone will report to me and people in the business are not worried about it losing its character,’ he explained.