How can small adviser firms compete with larger brands?

Having worked in wealth management for nearly four decades, I’ve seen the industry change in various ways over the years. One recent trend I’ve been monitoring closely is the growth in volumes of mergers and acquisitions (M&A) activity. The advice firms with over 50 advisers now account for nearly 50% of all advice staff in the UK. It seems that smaller adviser firms are finding it increasingly difficult to compete with larger, better-known brands.

It’s a trend that affects the advisers we work with in different ways. Some are keen to sell up, in which case we can easily make introductions to facilitate that. Others are looking for solutions to help them hold their own against the bigger names. To offer solutions that do this effectively, we need to fully understand what’s driving the trend. We commissioned a study to find out.
 

Consolidation appears set to increase

Given that there has already been a high level of consolidation within the wealth management sector over the last few years, we wanted insight into whether this is likely to continue and at what pace.

We asked a panel of over 100 IFAs and financial planners around the UK to share their expert opinions. Only a small minority believe the sector will stay the same as it is today. Nine in 10 (90%) agreed that they expect consolidation to increase. Of these, around one in three (32%) predicts a dramatic increase.
 

Small firms need to evolve to meet clients’ needs

We asked the advisers on our panel what’s driving this growth in consolidation. The most common response, agreed with by more than three in four (76%) of the IFAs and planners we surveyed, was that smaller companies are unable to evolve as they need to meet the changing needs of clients.

As we’ve discussed in previous articles, clients are becoming more demanding. They’re better educated about the financial markets and like to be more informed about their portfolio performance. Advisers at large firms with more resources are generally better placed to have the conversations these clients are hoping for.
 

Technology can be a saving grace

I agree that it’s challenging and time consuming for small firms to adapt – but it’s achievable if advisers can free themselves from the burden of day-to-day administration and management and focus more on what today’s clients need.

Investing in technology is one way for small firms to evolve. Plus, it can help to reduce ongoing costs – something that’s also crucial, as more than half (52%) of the advisers we surveyed identified the increasing cost of running a business as a factor driving consolidation.

Our research reveals that the lower running costs of new technologies is allowing firms of all sizes to start taking on clients with lower average values of investible assets. Five years ago, the average minimum value of investible assets a client would need before an IFA would work with them was £209,250. Todays, it’s £177,250 – 15%, lower. 82% of IFAs now have a minimum investment amount of under £250,000.
 

Your reputation is everything

A third reason for consolidation cited by almost half (47%) of advisers is the growing importance of a firm’s own brand and being part of a bigger organisation. In wealth management, just as in most other sectors, clients like the reassurance of a trusted name with nationwide scale.

Large companies may find it easier to win clients due to brand recognition and reputation, but small firms have strengths that larger ones sometimes lack. They can often cater better to a specific niche of the market or a geographical area. There are still plenty of clients who appreciate the friendly face of a small firm, if the firm can meet their other needs while successfully managing their costs.

Furthermore, M&A is not the only way to harness the power of a brand name. A partnership with a respected discretionary fund manager (DFM) can help to protect, enhance, and build your reputation, as well as helping you to manage your time and costs.

Furthermore, M&A is not the only way to harness the power of a brand name. A partnership with a respected discretionary fund manager (DFM) can help to protect, enhance, and build your reputation, as well as helping you to manage your time and costs.
 

A trusted DFM partner can help in a variety of ways

To face the challenges identified in our research and to survive in the competitive financial planning marketplace, IFAs and wealth managers need the right technology, products, and services. Working with a DFM that understands these needs can help you to build stronger client relationships, win new clients and reduce the admin burden currently experienced by so many in the sector.

Investec Wealth & Investment (UK) is one of the UK’s leading and most reputable investment management companies. With over 25 years’ experience working with advisers across the UK, we’ve earned a reputation for providing high quality levels of service and we’re in tune with the changing market.

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The information in this document is believed to be correct but cannot be guaranteed. Opinions, interpretations and conclusions represent our judgment as of this date and are subject to change. Past performance is not necessarily a guide to future performance. The value of assets such as property and shares, and the income derived from them, may fall as well as rise. When investing your capital is at risk. Copyright Investec Wealth & Investment Limited. Reproduction is prohibited without permission.