The wave of consolidation in the fund management and platform space is primarily driven by the cost pressures felt by the industry, experts have said.
Speaking on the FTAdviser podcast, Ben Yearsley, investment consultant at Fairview Investing, said clients had started probing what they were paying for their financial life, narrowing margins for firms.
He said: “Price is such an important thing and since clients have started getting the break down in pounds and pence of what asset management, platforms and advisers are taking, cost pressure has become a big part of it.
“These businesses have so many layers of costs and mergers are one way of reducing the costs and becoming more efficient.”
Mr Yearsley noted the cost pressure was felt more acutely by big, listed fund houses, who had a pressure to grow but also a high cost base and expensive, legacy funds.
He added: “One way of satisfying your shareholders is buying. If you can pick it up on the cheap, you can strip out at least one layer of the cost by ditching half the people.
“I’m not sure it works, though. It’s rare to see a really successful merger.”
Mr Yearsley was discussing the growing number of mergers and acquisitions in the industry with Mike Barrett, consultant at the Lang Cat.
He agreed cost pressure played a role in trend, adding: “Margins have come under increased pressure since the transparency that’s happened over the past few years.”
Mr Barrett said the downward pressure on fees was “challenging enough” in the good times but that the last 12 months had not been “particularly great” for platforms.
He said: “The platform space is increasingly a scale game. If your margins are so thin, you need to have the scale to be able to generate the returns you simply need to stand still.”
More positively, Mr Barrett said mergers and acquisitions in the platform space were also driven by the fact it was a “reasonably buoyant market”.
He said businesses that had listed had done relatively well over the past few years and so private equity firms and investors wanted a “slice of that action”.
In a further segment, hear about the City watchdog’s evaluation of the advice market and moves made in the mortgage space from reporters Rachel Mortimer and Chloe Cheung.
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