December 17, 2013 7:57 pm

Reforms spur wave of wealth manager takeovers

Takeovers of wealth management companies have reached “fever pitch” this year with more than $8bn being spent, and nearly half of the deals involving UK firms, a new report has found.

During 2013, Scorpio Partnership, a consultancy group, has recorded 60 acquisitions involving wealth managers worldwide – of which 28 occurred in the UK, as changes to the way firms can earn money, under the Retail Distribution Review, drove a wave of consolidation.

This year’s takeover activity took the total number of wealth management deals to 236 since 2008, and the cumulative assets transferred to new managers as a consequence to $1.77tn.

But a large proportion of those assets were taken over in just the past 12 months – suggesting that M&A activity in the wealth management sector is accelerating.

Of all the UK assets under management acquired by wealth firms since 2008, nearly 40 per cent were acquired this year.

“There’s almost been hyperactivity in the UK market in changes in ownership and that has been stimulated by the regulatory introduction of RDR,” said Sebastian Dovey, a managing partner at Scorpio Partnership.

Under the RDR, which came into force in the UK in January, wealth managers have been banned from earning commission on the sale of financial products, required to gain higher professional qualifications, and made to switch to a system of charging upfront fees.

Many of the businesses less able to adapt to the rules have since been put up for sale, or become takeover targets. Scorpio noted that 25 of the 28 UK deals this year involved the acquisition of a business operating the old “independent financial adviser” model – giving advice apparently free of charge, but earning money through sales commission.

However, with wealth managers’ income streams coming under pressure globally, the prices being paid for their businesses has been falling. Scorpio’s research found that the ratio of acquisition price to assets under management has fallen in recent years, from 1.55 per cent in 2010 to 1.08 per cent in 2013.

“There’s been a recalibration of the worth of wealth management businesses,” said Mr Dovey.

Kevin Ronaldson, chief executive of Bellpenny, a fast-growing UK wealth manager, said that regulatory charges were forcing wealth managers to think differently about growth strategies.

“RDR has provided a catalyst for financial planning and wealth management businesses to review their business models, our industry needs to embrace it”, he said.

Since it was founded in October 2012, Bellpenny has grown through acquisitions – taking over 13 other companies, and gaining £1.1bn of assets under management. In addition, the company has looked at or been approached by about 100 other businesses over possible deals.

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