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Why you should expect further wealth manager consolidation

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Why you should expect further wealth manager consolidation

Further concentration is coming in the wealth management market, as Raymond James announced last week that it was looking to acquire Charles Stanley.

There are efficiencies to be gained from scale in wealth management. Firms have increasingly focused on centralising their operations and bringing more consistent approaches to portfolio management, as a response to burgeoning regulation and declining margins.

But the field of viable target firms for acquirers is gradually shrinking.

  • There’s a cluster of firms around £40-50bn AUM, among which will be the combined Raymond James/Charles Stanley. This bracket also includes the recently combined Tilney Smith & Williamson, Quilter (taking just their wealth management assets), Rathbones and others.

  • Another half-dozen firms have £10-20bn AUA. They are mostly traditional wealth management firms, with mixed results in terms of recent asset growth. Much of the recent M&A activity has involved firms of this size.

  • Below this level sits a set of firms focusing mainly (or exclusively) on distribution via financial advisers. A few are approaching £10bn in assets, mostly held through platform model portfolios. These firms are growing fast, but competing in a market that is fiercely competitive and under significant margin pressure.

The top 25 UK wealth management firms make up around 85% of total UK wealth management assets. There is an incredibly long tail of small wealth management firms below this. We’d characterise many of these as lifestyle businesses – supporting the owners and staff, but with scant regard for any eventual sale. Consolidation is far more difficult here.

Acquisitions in the wealth management market also tend to spawn new firms: wealth managers are often entrepreneurial individuals who rebel against the constraints imposed on their activities and leave to set up on their own. Raymond James has recently carved a niche in the market by providing a home for these ‘rebels’, operating as the principal for wealth managers who want to run their own boutiques.

As they harness some of the efficiencies of scale while simultaneously running a boutique approach to wealth management, we think Raymond James is one to watch.

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