Opinion  

Why some advisers will struggle to join the exit party

Why some advisers will struggle to join the exit party

Wealth management industry consolidation is picking-up pace – and there are no signs that the intense merger and acquisition activity we are currently witnessing is going to slow down anytime soon.

In addition to insurance companies buying distributors, consolidators are upping their game and finding hidden value in underperforming financial advice firms.

Nevertheless, any firms rushing into this fast-changing environment with their eyes closed could quickly find themselves encountering problems. While potential targets with profitable books of customers may look attractive on paper, acquisitions can become a nightmare if back office systems can’t be effectively integrated.

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For wealth management firms, so much now rides on having best-of-breed technology in place, both in terms of attracting and retaining customers but also ensuring that processes are as efficient and effective as possible. Despite this, we are still frequently coming across systems ill-equipped for today’s requirements for outcomes-based solutions and suitability testing.

With regulation and the operating environment in general becoming increasingly complex, more and more firms are outsourcing technology and investment processing which are not core to their propositions. This allows businesses to focus on growing their brands, delivering advice and building long-lasting relationships with their clients.

Wealth management firms don’t need reminding that the pension freedoms introduced in April present an enormous opportunity to advise consumers on the plethora of choices they now face as they approach retirement.

However, delivering a profitable, efficient and compliant service is not without its challenges. While the pension rule changes mean there has never been a greater need for advice, there has also never been a time that it has been so expensive and risky to deliver.

Firms that see technology as a cost – rather than an investment – and keep their spending as low as possible, will struggle to scale their operations in the long-term. They won’t achieve the value they desire for their businesses and will encounter considerable problems with dated back office systems that won’t talk to each other.

We therefore expect to see wealth management firms increasingly relying on a small number of well invested “engines” to power their propositions and respond quickly to change. Many businesses realise they are not big enough to implement the required systems on their own.

With merger and acquisition activity likely to continue and potentially speed up when the legacy commission ban comes into force next year, the wealth management industry has never been more vibrant.

The huge advances we have seen in outsourcing are not only making deals possible in the first place, but are helping ensure that post-merger businesses continue to grow and build value.

Brett Williams, managing director for UK private banking at SEI Wealth Platform