Every time I open a paper in the financial trade press these days, I seem to be confronted by yet another headline about some merger or acquisition in the wealth sector. A search for ‘acquisition’ on Citywire finds over 16,000 results, the Professional Adviser website returns 25 stories in the last 3 months alone, and recently New Model Adviser ran a story on the 13 platform acquisitions that have taken place since 2019. It is tempting to conclude that the whole industry is heading towards an oligopoly of vertically integrated giants and there are plenty of commentators predicting just that.
Financial services is not the first sector to experience this kind of wholesale consolidation and it is instructive to look at the history of another of my favourite industries, brewing. Between 1930 and 1980, the number of breweries in the UK fell steadily from over 1400 to fewer than 200, largely due to takeovers, with the top six brewers accounting for 75% of sales. Then, in the 1990s, an interesting new trend began to emerge – the rise of craft beer.
The Campaign for Real Ale (CAMRA) had been agitating against the homogenisation of beer by the big six brewers since the 1970s, but it took until the late 80s for membership to reach a critical mass where it started to look like a business opportunity. Thanks to the increasing prosperity of the middle classes during the boom years of Thatcherism, micro-breweries sprang up in several economic hotspots across the UK. Demand for more variety, the development of specialist craft brewing equipment and new sources of finance all combined to accelerate the trend until, by 2017, the number of UK breweries passed 2,000 for the first time in 80 years.
Despite the slew of stories about M&A activity, there are signs of a similar sea change across the wealth sector. Over the last six months, 500 new investment advice firms have appeared on the FCA register and, interestingly, according to FCA data, firms become less profitable on average as they grow in size. At the same time, we are beginning to see the equivalent of craft brewery equipment developments in the shape of new technology services for advisers. Firms like SECCL, Fundment, Adalpha, Asura and WealthOS are bringing platform technology to smaller advice firms while new planning tools, portals and reporting systems continue to spring up targeting a new generation of advisers.
So, for asset managers looking to navigate the investment distribution landscape, you can expect it to look even more complex over the coming years. Whether you’re selling the equivalent of hops by the ton or Lambic yeast by the gram, there is an increasing variety of advice flavours in the market and sales teams will need help to sort the Heinekens from the Abbey Ales. That task involves staying on top of the ever-changing kaleidoscope of distribution firms and their historic groupings and structures. It involves understanding who is really making the investment decisions on client portfolios. And it requires a detailed knowledge of fund sales across some long and complex custody chains. All of which explains why we developed Finscape to reach the parts other solutions cannot reach!