Winds of RDR driving market consolidation: Aite

The lasting effects of the RDR are set to push an increasing number of advisers towards consolidation, Stephen Wall has said.

The senior analyst in wealth management for consultancy Aite Group found that advisory firms were having to engage with significant structural upheaval following the RDR, as clients demanded a more flexible, efficient, client-centric and transparent proposition.

He said: “The past two years have seen a significant number of deals taking place, both at the top of the market and down through the tail.

“Consolidation is likely to continue as mergers create scale, private equity buyers enter the market, various consolidators complete high numbers of deals, parent companies exit from non-core business units and product providers seek distribution channels.”

A 55-page report from Aite, written by Mr Wall, found that many firms had become “unsustainable” post-RDR, with the regulatory landscape driving them towards mergers and acquisitions, absorption by larger businesses and even market exits.

The consultancy’s analysis of the market included interviews with wealth managers, financial advisers, consultants and asset managers, and suggested that the wave of consolidation experienced since the implementation of the RDR would continue.

The report found that, along with shifts in segmentation, an increase in outsourcing by advisers was altering the market, while a fall in adviser numbers continued to widen the advice gap.

It added that deal activity would rise further as the real pain of the RDR, and the flow of other regulations, began to bite at the viability of wealth managers.

The study also warned that the regulatory burden on firms could stifle innovation in the short term, with most firms focusing on patch-up “keep-the-lights-on activities”.

Industry view

Brian Spence, managing partner of London-based financial services consultancy Harrison Spence, said: “Consolidation within the advisory space is inevitable, and I agree it will only escalate as older advisers start looking at their options.”

Adviser view

Keith MacDonald, certified financial planner at Worcestershire-based Broadway Financial Planning, said: “I would not disagree with the increase in firm consolidation, but as a member of the Institute of Financial Planning, there are a lot of small firms that operate with really good business models. Small firms can still work.”