Will wealth consolidation polarise the funds industry?

Concerns are mounting that consolidation in the wealth management sector and the subsequent merging of buy lists is resulting in assets being channelled into an increasingly small number of investment funds.

At the same time, the rising number of advisers outsourcing their investment to discretionary managers is expected to result in a larger share of assets ending up in the hands of a concentrated band of wealth managers.

This could cause larger funds, which are able to cater for flows, to get even larger, while smaller funds will struggle, creating a polarisation in the funds industry.

Buy lists

The trend is perhaps most evident at acquisitive Investec Wealth & Investment, which has already integrated the buy lists of Investec Private Bank and Rensburg Sheppards. It is set to integrate this combined list with those of recent buys Williams de Broë and BNP Paribas Wealth Management.

While Investec Wealth & Investment’s Nick Sketch was unable to comment on the progress of the exercise, he said the growing crossover between holdings on recommended fund lists in large wealth management companies, on the back of better or more centralised due diligence, is a concern.

‘I know that we and at least one of our rivals are absolutely aware of the issue, and we are continually working on how to strike the right balance to address it,’ he said.

Antidotes to the problem include allowing enough leeway so there isn’t a ‘one size fits all’ approach, he said. ‘Second, you allow experienced people from firms to have input and inform opinion, so your research function is not doing 100% of it,’ Sketch said. ‘Third, you bite the bullet and say, “We are not going to have four people covering 50-100 funds.” You say, “We cover 300-400 funds and are properly resourced to do that.”

‘There is no short cut to getting around having enough suitably experienced staff doing due diligence.’

He points to the possibility of a handful of large private client firms ending up with significant holdings in certain funds, which could create issues for the fund provider or for dealers in investment trusts if several firms were to place sell orders around the same time.