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Together we're stronger: how M&A is transforming the wealth sector
by Anna Dumas on Apr 16, 2014 at 12:50
We asked five wealth managers how they think mergers are affecting the boutique sector.
The first quarter saw a signficant pick up in merger and acquisition activity in the wealth industry in the first quarter.
This has continued into the second quarter with Rathbones sealing a deal for Jupiter's private client arm and Brooks Macdonald snapping up Jersey-based DPZ Capital among the highlights.
Why exactly have we seen the number of deals rocket? We ask five wealth managers.
John Greenwood, CEO, Creechurch Capital, Douglas
‘Mergers are an inevitable development in the sector. I’m certain we’ll begin to see far more of this type of announcement from other boutiques as they have grown to a size at which they are no longer strictly a boutique.
For many, this could have been their initial objective anyway. Of course, the overall market sentiment and activity is also improving.
‘For me, being a boutique goes beyond simply being measured by a firm’s size, and is an ethos, personality and way of being. I hope [Thurleigh and Ingenious] don’t lose sight of this as it is likely this is what their clients bought into when deciding to do business with them.’
Richard Scott, senior fund manager, Hawksmoor Investment Management, Exeter
‘It is indisputable that wealth managers’ costs have risen recently, not least due to the burdens of regulation and compliance. As this has occurred when fees have been under downward pressure, the squeeze on profitability has made it harder for boutiques to grow profitably and achieve critical mass. These pressures have sparked a round of mergers in our sector.
‘In one way this is a shame, because increasing consolidation is working to the detriment of many investors who place great value on the personal tailored service that boutiques can offer compared to large national firms. Certainly, this is what we hear from the clients coming to Hawksmoor.
‘Furthermore, the upside of what is likely to be a Darwinian process is the fact that those boutiques who succeed will have the opportunity to stand out all the more, and deliver a really valuable service to their clients.’
Harry Morgan, head of private investment management (UK) Thomas Miller Investment, Edinburgh
‘Wealth management is going through one of its periodic bouts of consolidation, as it did in the late 1980s. The current “Big Bang” has arisen from the retail distribution review, tighter regulation, and a need to invest in IT.
‘Firms are merging because they want to enhance their market position. They are hoping that a sharing of culture and competencies will be good for clients and be attractive to the market. They want to achieve economies of scale through being able to allocate fixed costs across a combined revenue stream. If those elusive synergies can be found, then value will be created.
‘This will take some time to play out, and so boutiques may be an endangered species for a while. However, the decline in the number of competitors means there will be more opportunity for those who remain and who offer a genuine alternative to banks and to the larger wealth managers.’
David Scott, founding and senior partner, Vestra Wealth, London
‘Mergers have been prompted by two main drivers, namely where the firm’s revenue model is based on receiving trail commissions and a lack of ability to continue to grow organically.
‘From the outset, Vestra Wealth was set up with the vision of providing a full service offering, based on transparency and rebating trail commissions, so the retail distribution review did not affect its revenue model. The breadth of services means we are an attractive alternative to the large banks.
‘The investment we made in the early years into offering a full back office and broadening our service capability has meant that we can grow without huge further investment. We have always been focused on long-term profitability and preferred to invest rather than maximise short-term gains.’
Lorne Baring, managing director, B Capital, London
‘The boutique firms and their clients are still having difficulties post-2008. The velocity of money has diminished since the crisis, firms are feeling the costs of their overheads and margins are skinnier. What’s more, their ultra high net worth and high net worth clients are still behaving more like savers rather than investors.
‘In order to keep costs down and increase volume of business, we are seeing more and more mergers and acquisitions in the wealth management industry. However, the attraction of a boutique offering, the highly personalised service and dedication of a close-knit team, is lost when the scale of the company increases. The larger a boutique becomes, the less of a boutique it is.
‘Paradoxically, it is a great time for boutique wealth management firms because investors are still wary of the big banks. It is essential for any boutique firm to find the right balance between keeping costs to a minimum while also delivering a highly personalised service to clients.’