IFA consolidation up 11% as deals hit record high

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IFA consolidation up 11% as deals hit record high
[Miles Willis/Bloomberg]'Signals still point to even further consolidation in the year ahead'

UK financial advisers and wealth managers have experienced an 11 per cent uplift in acquisition interest over the past year, following huge flows of private equity money into the sector.

Deals to buy IFA firms were up 11 per cent in the year to September 2022, increasing from 398 to a record high of 440. 

International law firm Mayer Brown, which conducted the research, said the trend for private equity backed ‘consolidators’ to acquire IFAs shows no signs of slowing.

Signals still point to even further consolidation in the year ahead.James West, Mayer Brown

“These firms have been very active in acquiring smaller IFAs over recent years as they seek to build major ‘platform’ businesses in the sector,” the law firm said.

With the IFA market highly fragmented, consisting of thousands of small firms and self-employed IFAs, it lends itself naturally to consolidation.

By consolidating the market, PE-backed advice firms can invest more heavily in technology in an effort to capture the next generation of clients.

For larger firms, consolidation can drive down rates on professional indemnity insurance and reduce costs. While for smaller firms, being part of a bigger group eases the cost of compliance.

Number of acquisitions of UK IFAs and wealth managers over past five years

Source: Mayer Brown

“Many smaller firms do not have the management time or other resources to easily achieve compliance with the FCA’s [Financial Conduct Authority’s] incoming consumer duty regulations,” Mayer Brown explained.

“These new rules are a major change in regulation, assessing financial advisers much more rigorously on value for money and creating much more onerous reporting requirements.”

With 17 per cent of financial advisers over the age of 60, there is a significant opportunity for consolidators to buy up retiring businesses. 

Major players such as Evelyn Partners and M&G have set up succession programmes in order to benefit from this opportunity and the books of business it throws up.

“Signals still point to even further consolidation in the year ahead,” said James West, partner at Mayer Brown.

“There are still a large number of advisers contemplating selling their firms to fund retirement. The increasing regulatory burden and the difficulties of scaling a small IFA firm will make selling to a consolidator an attractive exit option for some of them.

“Given the greater resources and improved technology which IFA platforms can bring, the trend towards greater consolidation can be seen as a positive for the sector overall including, most importantly, the customers of these IFAs.”