Firing line  

‘Lower earnings and more costs have led to consolidation’

‘Lower earnings and more costs have led to consolidation’

Matthew Wright, director of sales and marketing at Fulcrum Asset Management, first started out in the asset management industry as a headhunter.

This gave him the experience and contacts he needed to reposition his career in the world of asset management.

And according to Mr Wright, if one compares what it was like back in the late 1990s with now, there has been a big change in the industry.

He says: “The industry has changed a huge deal since then, when returns on assets were huge.”

But one thing has remained the same.

He says: “Asset management is about building long-term relationships; friendships in and outside the industry.

“It is a nice enough industry that we all cross-pollinate and discuss ideas, even with our competitors.”

Nevertheless, he says the industry has become a lot more competitive, with less money and assets going to fewer managers. 

“It has become a bit more dog eat dog,” he says.

One of the challenges facing the industry is the consolidation of asset management companies.

He explains: “The impact of consolidation and margins and all of the pressures on the industry means there is a little bit more fighting [for assets], whereas historically there was enough to go around for everybody. 

“Now it is feast or famine in many respects.”

He adds: “But it does not stop the long-term relationship with the client.

“Yes, there is the financial and sales element, but many of the relationships are built to endure, and trust in the industry is very important.”

On why the industry has changed so dramatically, he explains it is due to a combination of factors, though largely because of regulation.

He says: “The defined contribution price cap on assets has fundamentally changed how much asset managers get paid. 

“The cost and stress to businesses are huge: now, we have teams of people involved in operations and management of the business and we subcontract legal, accountancy, advisory, third-party administration to many external providers.”

Mr Wright continues: “This sets a lower bar and [results in] lower earnings for businesses. Lower earnings and more costs have then led to consolidation.”

He quotes some recent examples of mergers, such as Brewin Dolphin’s acquisition of Epoch Wealth Management and Sanlam UK’s purchase of Thesis Asset Management.

He explains that in an attempt to return assets under management and asset growth to shareholders, consolidation allows companies to acquire assets to “constantly look as though you are growing, even if your margins are lower”.

“Consolidation is a problem because it means there is less competition in the market. 

“[And] if acquisitions are not so good it can lead to growing pains [and] cultural squashes. That can then affect clients in terms of poor performance, low morale [and] people leaving.”