The financial advice sector could see a correction on fees and charges as more advice firms are merging into large players with increasing market share.
The first half of 2019 has witnessed an acquisitions market seemingly undeterred by the political uncertainty of Brexit, with perhaps the most significant move this year being Quilter's £46.2m bid for national advice company and network Lighthouse.
Quilter's acquisition of the Aim listed business is expected to complete during the second quarter of 2019, with the deal voted in by Lighthouse shareholders earlier this month.
It will see 400 advisers join Quilter's advice arm Intrinsic forming one of the biggest advice firms in the country and, according to consultancy the Lang Cat, the deal means almost a third of financial advisers in the UK will be with either Quilter or rival St James's Place.
Sanlam UK is another advice firm which has been on the acquisition trail this year having bought Newcastle-based financial planning company Blackett Walker in April, and Preston-based chartered financial planner Astute Wealth Management in January.
Last month Sanlam announced its acquisition of discretionary fund manager Thesis Asset Management, bringing the group's private client discretionary assets under management to £4.2bn and bolstering the company's presence in the south of England.
The chief executive of Sanlam UK, Jonathan Polin, joined the company in 2015 with the ambition of turning it into a "significant player" in the UK.
But Mr Polin warned whilst he believes there is space for advice firms of all sizes in the market, large scale consolidation could have its pitfalls, and that could be reflected in fees.
He said: "I absolutely believe there is space for bespoke, very high quality independent financial advisers looking after a small number of quality clients. So there is space at both ends of the spectrum.
"I do think that getting too big, whilst with many scale benefits, does distort the market and what is very important is we become much more competitive on fees and charges than the industry has ever been before."
Mr Polin added: "All of our client bases are becoming far more knowledgable than ever before, and with greater access to information it is only right people really understand the true costs of their investments.
"The transparency of Mifid II has been a catalyst to that and will continue to be so."
Kay Ingram, director of public policy at LEBC, also thought consolidation in the market could have the potential to make advice more affordable. But she added consolidation would not be a "magic bullet".
"At LEBC we have adopted technology to augment our financial planners which enables us to advise more people and to keep the cost affordable. This bionic advice approach is likely to make a greater difference to advice accessibility than consolidation on its own," she said.
Other industry experts took a different view. Stuart Dyer, former chief executive of Cofunds and current chairman of introducer Soprano Mergers and Acquisitions, said he has not seen any interest from the big players to squeeze fees.
He said: "We deal with most of the large consolidators and acquirers in the field and at no point have I gained the impression that they would do anything else other than maintain the status quo on charging.
"We talk with a lot of IFAs and at no point are we getting the impression that they are coming under pressure from their clients to reduce fees."
Mr Dyer said he has been witnessing "huge client loyalty" to advisers with no evidence of a "downward drift " in fees and charges.
He added: "It’s a very fragmented market, and even though there are some big players around there aren’t really very many trusted brands in this place that lead the way in terms of pricing."
Stephen Gazard, group managing director of Intrinsic, Quilter's advice arm which Lighthouse is set to join later this year, also thought the impact of consolidation on adviser fees was "limited".
He said: "For instance some of the consolidation has been into networks. Network advisers, be they independent or restricted set their own fees."
Mr Gazard said in his discussions with advisers each week finding clients was "rarely" the challenge and he has not witnessed competition from other advisers driving down advice fees.
Patrick Connolly, head of communications at independent financial advisers Chase de Vere, said the market had changed "completely" since the Retail Distribution Review of 2012, with more consolidation and "nearly all" larger companies trading as restricted.
But Mr Connolly said whilst price remains important in the market, advisers do not need to undercut competitors to succeed.
He said: "Advisers have to be competitive on charges, but not necessarily competing. In fact with more larger firms overall charges are increasing, and advice costs cannot be compared in isolation when product charges are also included."
In figures released last year the Financial Conduct Authority found retail investment revenues earned per adviser remained largely consistent across the market in 2017, irrespective of a firm’s size.
However the regulator did find firms with a single adviser earned slightly less per adviser on average than those in larger firms, with an average retail investment revenue of £148,105 for one-man band advisers compared with £171,284 for those in a firm of 6-50 advisers.
The FCA found strong growth in revenue earned from fees and charges in 2017 (up 31 per cent), while revenue earned from commission fell by 5 per cent.
Keith Richards, chief executive at the Personal Finance Society, also said pricing could be an issue for some clients but he did not think it was always the primary factor in an adviser's success.
He said: "I think it depends on the route in which new clients come from, as to existing clients price isn't always an important factor because they can quantify value in a relationship and the confidence an established relationship has given them in their financial planning.
"Most new clients also come from already established client relationships, and they are also not always looking for the cheapest service but rather someone they can trust and rely on.
"Once you can quantify a value in a service you can trust, price becomes secondary."
But he added: "When a prospective client contacts an adviser out of the blue, price does become the primary consideration because it is the only tangible factor the client can compare with competitors."
Mr Richards said more than 80 per cent of PFS member firms' new clients come through recommendations from existing clients, "certainly for smaller firms".
He added: "Financial advisers have become far more confident in demonstrating their value beyond price, it is why the sector thrived in the post-RDR environment.
"In many ways advisers have become very confident in demonstrating they are the product, and the client is buying into the concept of someone who can help them in their financial needs and objectives rather than buying a product.
"Price again then becomes secondary. If you don't lead with what it is you can do as an adviser, then anyone who thinks leading with price is the best way forward may be getting the wrong client through their door."
rachel.addison@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
