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Will wealth consolidation reverse RDR pricing pressure?

by Danielle Levy on Nov 22, 2012 at 07:00

As the latest wave of consolidation in UK wealth management gathers pace, senior figures in the industry are questioning whether the economies of scale will be passed on to clients.

Many argue the latest round of mergers and acquisitions (M&A) has much further to go and is being driven by the perfect storm of rising regulatory requirements and costs, pressure on margins and revenues as new business stalls, and a growing acceptance of lower valuations by sellers.

Quilter’s purchase of Cheviot comes hot on the heels of Rathbones’ purchase of Taylor Young Investment Management. Rathbones plans to raise a further £24.2 million to take advantage of acquisition opportunities (see page 6 for more details).

Meanwhile, Collins Stewart parent company Canaccord took over Eden Financial earlier this year, indicating a growing trend towards consolidation in a fragmented market.

Driven by regulation

‘There is no doubt that regulation to a degree is driving some of it because the whole retail distribution review (RDR) process has caused people to look at their business model and decide if it is sustainable in its current form or whether it would be better set alongside another firm or part of a firm,' Andy Steel, chief executive of boutique James Hambro & Partners, explained.

In August, James Hambro & Partners decided to merge with high net worth financial planner Calkin Pattinson, to expand its proposition and increase scale ahead of the RDR. Steel anticipates that consolidation will continue, with two types of deal dominating.

‘We think what we are seeing is a bit of polarisation between bigger houses increasing market share by acquisition or two small businesses coming together to make sure they have sufficient scale to survive the RDR. Two different types of deal are happening and this will continue,’ he said.

Impact on pricing

With incoming regulator the Financial Conduct Authority seeking to promote competition in the interests of consumers while the RDR aims to improve competition through increased transparency and the removal of trail, the fact regulation is driving consolidation – and thereby removing competition and choice for consumers  – could be seen as ironic.

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1 comment so far. Why not have your say?


Nov 22, 2012 at 09:30

As usual PK is spot on but of course he's speaking from a position of strength. As he well knows most of the PCIAM practitioners in the market with experience don't have that luxury with RDR impositions being severely tested here.The lack of new competition, new boutique operations is solely down to the absurdly slow and unimaginative application process, regulatory costs and Basel III considerations with a tidal wave to follow. As firms like Investec, Rathbones, Brewin, CS, seek further consolidation some downward pressure on 1%-1 1/4% fees is expected but the real scandal is that new age wealth managers can be given the credentials through RDR to focus on all aspects of financial services simply because an examination has put some letters behind '000s of names who lack real market experience. As someone who has done 36 years iin CofL I've never yet seen a stockbroker achieve real competency in other finacial matters and I doubt many really want to anyway. The real scandal is allowing IFA's to rebrand themselves as Wealth Managers allegedly flagging expertise in funds, alternatives, all aspects of capital markets instruments, tax & tax planning, pensions incl SIPP's, ETF's incl commodities and derivatives instruments etc I making the point clear? When I entered the industry my forbears (& there were many) used to remind me of the old market adage, "there is no such thing as an expert" and yet today EVERYONE is. God help the industry and the investors. Is it any wonder as PK mentions that new business is scarce. Treating the public with disdain and contempt is not going to win any friends when RDR is seen for what it really exercise in stealth rather than wealth creation.

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