In the wealth management space, investors often focus on the fragmented nature of the market and buy-and-build as the growth story. Our experience has shown us that whilst value in the space is often delivered through acquisition, it is not a straightforward consolidation of a long-tail of owner-managed financial advice businesses that drives success. There are a number of key drivers, both in how you successfully deliver that M&A strategy, how you integrate the businesses you acquire, but also the organic growth opportunities on offer. We look at what we consider to be the four key drivers for success in wealth management:
1. A distinctive go to market strategy
There are a number of businesses in the wealth management sector that are delivering fantastic growth organically because they are able to offer existing and prospective clients a compelling USP. This is frequently focused on targeting distinctive segments that need a unique wrap-around to the wealth management offer, such as tackling different regulatory or tax needs. Some examples of this might be those that offer wealth management to ex-pats, those in a partnership model, retirees or lottery winners – the list goes on but this is all about being able to offer a bespoke service targeted to customers’ unique needs.
The same is true geographically – wealth management is a people business, and end customers often want to meet their IFAs face-to-face before committing to them. This can give some wealth managers a stronghold in certain geographies. In both instances, the wealth manager is able to deliver focussed sales and marketing, and their distinctive offer helps serve that customer better than competitors.
2. A relationship of trust
Whether it’s an organic or acquisitive growth strategy, wealth managers that can successfully retain advisors will have an advantage in the market. Over the last decade, there has been a focus on value for money in the wealth management industry, however IFAs have managed to retain their margin as they own the client relationship. This is why it is imperative for wealth managers to offer advisors a great place to work and their end clients continuity in service and relationship. Retaining advisors is the best way to retain clients. This is all the more important when integrating following an acquisition.
Wealth managers that are successfully doing this often have high-quality training on offer, with an ability to take care of back-office administration freeing up advisors to spend more time with existing and prospective clients.
3. A home for advisors
The reason that investors often look to buy-and-build within the wealth management space is because there are a number of drivers for significant further consolidation in the market. There are 5,543 financial advisors in the UK, a generally aging advisor base with many looking for succession solutions, and with increased regulation and the need for technology, many advisors view consolidation as an effective way to address these challenges.
However, despite that high number of potential targets, there are multiple companies in the sector pursuing a buy-and-build strategy, so competition for those businesses looking to sell is fierce. Companies need to be able to offer their M&A targets something that appeals, and in this industry which is so relationship-driven, company culture will be a key part of that. It’s something we’ve seen at ECI in an adjacent market, the insurance sector, where close relationships between advisors and their clients means that vendors are looking for a home where clients and families are looked after for the long-term. ECI-backed Clear Insurance has found that focusing on how clients and staff are looked after differentiates them from other acquirers. Taking on the back office ‘chores’ is key to this and Clear have multiple examples of founders who have remained with the group long after an acquisition’s ‘handover period’, reinvigorated by the ability to do more of what they love – spending time with clients.
4. A unique acquisition model
In the increasingly competitive buy-and-build environment of the wealth management space, we’ve seen an increasing number of firms consider different acquisition models to given them something differentiated to help them win in the process.
For example, some wealth management businesses have given the vendors a ‘try before you buy’ period to give them some comfort in the consolidation process before they commit. Whilst deferred consideration is not unusual, it is normally to the benefit of the buyer rather than the seller, so this turns the same idea on its head and gives the vendor more comfort about what the process might look like and what it would mean for their people and clients in the longer term.
If you would like to find out more about how we can help wealth management businesses unlock growth opportunities please do get in touch with michael.butler@ecipartners.com
