The number of M&A deals targeting UK financial advisers and wealth managers has risen 11% from 398 to a record high of 440 in the past year*, shows new data from Mayer Brown, the international law firm.
The trend for M&A deals for IFAs is being driven in large part by private-equity backed ‘consolidators’. These firms have been very active in acquiring smaller IFAs over recent years as they seek to build major ‘platform’ businesses in the sector.
The market for independent financial advice is highly fragmented, with thousands of small firms and self-employed IFAs. Such a large degree of fragmentation lends itself naturally to consolidation, which can deliver significant economies of scale and allow PE backed firms to invest more heavily in technology and other customer-focused initiatives.
Larger firms can also get better access to a broader range of investment opportunities for clients. Larger IFA firms also benefit from lower rates on professional indemnity insurance which can lead to reduced costs.
Another key driver of consolidation is the increasing compliance requirements of the sector. Many smaller firms do not have the management time or other resources to easily achieve compliance with the FCA’s incoming Consumer Duty regulations. These new rules are a major change in regulation, assessing financial advisers much more rigorously on value for money and creating much more onerous reporting requirements.
Frequent targets for M&A deals include older IFAs looking to exit their firms to fund their retirement. Recent data published by the FCA showed that 17% of financial advisers are over 60, suggesting that there are still likely to be many more potential acquisition targets for consolidators.
James West, Partner at Mayer Brown says: “Given the fragmentation of the sector, IFAs were ripe for consolidation. This has been going on for a number of years and shows no sign of slowing down yet.”
“Signals still point to even further consolidation in the year ahead. There are still a large number of advisers contemplating selling their firms to fund retirement. The increasing regulatory burden and the difficulties of scaling a small IFA firm will make selling to a consolidator an attractive exit option for some of them.”
“Given the greater resources and improved technology which IFA platforms can bring, the trend towards greater consolidation can be seen as a positive for the sector overall including, most importantly, the customers of these IFAs.”
The number of acquisitions of UK IFAs and wealth managers has grown strongly over the past five years
* Year ending September 30 2022
** Source: FCA
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