Consolidators in the UK financial advice market have come and gone over the last few years.
Some have been loud and exited very quietly – and others have pursued ambitious targets only to end up pausing their acquisition plans.
But for Kingswood – the sky is the limit.
In its 2021 annual results, the international wealth and investment manager reported revenues of £149.7m ($181m, €177m), a staggering 488% rise from the previous year.
Assets under management and advice rose 15% to £6.8bn during the year, of which two-thirds was driven by organic growth with the rest via acquisitions. Operating profit recorded a nearly eight-fold increase, hitting £6.3m up from £800,000 in 2020.
Targets
The company attributed the performance to the successful integration of acquisitions in the UK and growth in the US.
In 2022, Kingswood has already bought six advice firms including Hampshire-based Smith Pearman and Associates, Yorkshire-based DJ Cooke Financial Planning; Allotts Financial Services in Rotherham; Joseph R Lamb Independent Financial Advisers in Essex; Eastleigh-based Aim Independent and Lincolnshire-based IFA firm Vincent & Co.
And the wealth manager’s M&A strategy shows no sign of coming to an abrupt halt.
David Lawrence, group chief executive at Kingswood, told International Adviser: “We’ve now built capacity and capability for the business to acquire and integrate broadly 10 medium-sized businesses a year.
“We are typically buying businesses in a range of operating profit of £500,000 to £1.5m. I would love to buy businesses with £3m or £4m of operating profit, but the market is thin and incredibly competitive. However, we do find that in many ways the smaller businesses are easier to integrate.”
Deal making
The Kingswood brand has become synonymous with M&A deals in the wealth and advice market.
But has this made it easier for the firm to complete acquisitions in the UK market?
“We’ve built a really strong reputation in the market for converting conversations into completed deals,” Lawrence said. “I’ve not had one deal that’s dropped off after we have signed heads of terms, and this is quite appealing to introducing brokers s and the firms themselves.
“I also think what also helps is we try and keep the deal structures relatively simple, which I think owners appreciate. We do not do deals with too many conditions or strings attached.
“The market is more competitive than ever, and sellers have heightened expectations – not just on price, but on all features of the deal and changes to their business. I think it remains a sellers’ market and the number of acquirers seems to increase almost on a daily basis. It hasn’t as yet, but I feel it will start to drive up price.
“As an acquirer, we’re very aware that profits of the businesses that we’re buying are getting squeezed because of inflation and the markets haven’t been particularly kind in the last six months.
“The businesses are naturally a little bit tighter on sustainability of profit than perhaps they were a year ago. It’s certainly not changed the seller or buyer sentiment, there’s still a lot of appeal in the market.”
International push
Kingswood has not been shy about its international ambitions and how it eventually would be keen to acquire firms outside of the UK and US.
But unfortunately, Lawrence admits that the firm “hasn’t found the right opportunities yet”.
“I’m particularly keen on Asia Pacific,” he added. “I think that’s quite an exciting market as it has a lot of common features with the UK market, but the right opportunity hasn’t arisen.
“If you think about the UK market being very fragmented, some of these other markets are really fragmented with a lot of single adviser or dual adviser firms. For us to purchase for example in Hong Kong or in the Middle East, we need something that could be run as an autonomous business because it’s too far away to be able to get involved in the day-to-day business.
Academy
The wealth manager is not just focused on acquisitions. It eyes organic growth and believes its academy can provide “self-sufficiency”.
It aims to have a mix of getting advisers through its academy and career paths, as well as recruiting in the open market.
“My goal is for us to become completely self-sufficient within the next 12 months,” Lawrence said. “We had four people in the academy last year, three of those have since graduated and are now financial advisers in our business. We are in the process of planning a further intake.
“We’ve also set up internal career paths with a very strong learning and development function across the business to recruit people at all levels that may want to become a financial adviser. We can support them in that goal.
“Currently, we’ve got a cohort of paraplanners, administrators and people in specialist roles that are training to be advisers. Organic growth is a huge focus.”
Investment arm
Another huge focus for Kingswood is its investment management arm.
The division gets overshadowed by the wealth division due to the acquisition strategy, but it still has a vital part to play in its growth plan.
Kingswood bought Iboss Asset Management in 2021 to bolster the investment management arm – and Lawrence said there were two reasons for the deal.
“One was to put a really strong investment solution on the shelf for our existing advisers to advise on,” he said. “But also, because Iboss were an open market distributed to around 150 IFAs across the country, it created an opportunity for another route to market in a business-to-business sense rather than direct to client. The business brought over £1.5bn of AuA, so it was not trivial.
“It’s been great for us because we can now, through the vertical integrated model, see downstream investment activity into the Iboss product range, from our 85 financial advisers. That’s has really strong flows and is really profitable. We’ve also got the open market distribution, which is also growing really well.
“One of the opportunities of that part of the business is when firms that Iboss are distributing MPS to want to make an exit event or a capital event, we should, in theory, stand a good chance of being able to acquire the businesses.
“As this forms itself, I’m really hoping that that it will create a pipeline of acquisition opportunities.
“Then, on the other side of investment management things, we’ve rebooted our personal proposition. We’re about to launch a range of Aim portfolios. That will give us a real richness to the more complicated and higher value clients in terms of proposition that I believe is more readily competitive against the more established names of likes of Rathbones, Brewin Dolphin or Brooks Macdonald.
“We have three parts to the value chain – financial advice, making and distributing model portfolios both to our own clients and to external clients, and also building a really attractive, bespoke DFM solution for the higher value or more complicated clients. We want to really win in both investment management and financial advice.”
