Most, but not all, wealth management companies have been extremely busy over the last year assuring compliance with the recently implemented Consumer Duty requirements, leaving little time for other commercial activity. Nevertheless, since since the Consumer Duty deadlines of July 31 has gone, it’s extremely possible that the attention will shift back to other operations, one of which will be mergers and acquisitions.
They anticipate there will be a rise in M&A activity in the discretion fund management (DFM) sector in the coming months, since they are an appealing possibility to buyers for two key reasons.
Based to the Lang Cat Condition of the The advisor Nation report, 91% of advisor companies utilize a minimum one centralized investments proposition (CIP) during their company, up from 88% in 2021 and 87% in 2020. In 2022, two-thirds (67%) of advising companies will outsource to a DFM MPS services for a minimum of some clients, whereas just over half (53%) will outsource such a fully-bespoke discretionary service. This compares to 61 and 47 percent in 2021, respectively.
This pressure will only intensify as businesses expand, and that’s assuming you consider the effects of Consumer Duty. Consultants increasingly outsource to DFMs for a variety of reasons, including getting expertise that they do not have in-house, operational challenges, and time and resource savings.
Regulation is raising the entrance barriers to the financial management business, and Consumers Duty is going to raise the bar even more. This has increased operational costs, implying that scale is essential for profitability.
Precise data for the overall scope of the DFM sector are difficult to come by, however the UK now has approximately 200 DFMs offering services, with a small number of significant suppliers leading in terms of funds under management. While it is a rapidly expanding industry, it appears improbable that the amount of suppliers will be viable in the long run.
The Customer Duty price for money evaluation, due by the last week of April, concentrated on the value that the DFM offers to the end consumer.
As a result, enterprises have had to reconsider their service costs and profit margins, providing them a greater grasp of their company and its long-term viability under the existing regulatory system.
Analysts anticipate a rise in two sorts of M&A transactions:
Scale acquisitions – this will include larger organizations that wish to considerably grow scale and profit from economics of scale from merging businesses (a good example is Rathbones’ latest acquisition of Investec). Less money is going out while more money is coming in; and
Growth acquisitions entail consolidation among smaller enterprises, some of whom are exiting the sector. As We previously stated, Consumer Duty has brought about an ideal circumstances for mergers and acquisitions among DFMs, so don’t be shocked if activity picks up in the coming months.