The UK advice market has seen continuous consolidation over the last few years.
The rise of the large acquirers and increase in the number of private equity-backed firms is changing the landscape of the sector across Britain
The cross-border advice industry has not received as much attention from PE firms – but this could be about to change.
Charles Lake, partner at NMG Consulting, told International Adviser: “We don’t expect to see much ‘post-RDR UK’ type consolidation in the cross-border international market, in which providers bought and merged advice firms.
“Instead, we expect to see a formalisation of the processes by which advice firms access capital. This will open the international advice market up to private equity funding, which can then be deployed into growth initiatives including consolidation, investment in digital processes and evolution of customer acquisition models.
“But critically, we expect these developments to be led by the advice firms themselves, rather than the providers.”
Future of cross-border market
Lake also said there will be continued growth of professionalism within the industry, which he expects will make international advice firms attractive targets for investment.
“We think we will see a continued shift towards advice charging disclosure, and ongoing fees or trail-based commissions”, he added, “although with some difference by market due to local regulation.
“Additionally, we’ll see greater digitisation of advice businesses, which takes the form of CRM solutions, advice tools and execution tools, and a formalisation of adviser training regimes and qualifications.
“This all points to an increase in adviser capability and productivity. Those advice firms that make the most of this opportunity will use this future advice model to reach more customers, with higher asset balances and more complex needs.”
Competition
The cross-border advice market is made up of several pieces including wealth firms, life insurers and platforms.
The international platform industry is set to change with the sale of Praemium International to Morningstar.
IA asked Lake whether this deal means there will be a lack of competition in the international platform market.
He said: “From an adviser’s perspective, I can understand the concern around the number of platform competitors. But at the same time, international platforms need to operate at sustainable margins, which means that most platforms need to grow their assets substantially.
“If we look at how the UK domestic market platform market has evolved, it is clear that price will become increasingly important within adviser selection of international platforms. It’s then a question of if there is scope for value based differentiating factors in the international market, or is it just going to be about price in five years’ time?
“There’s a good argument to make that the complexity of multi-jurisdictional activities and complex customer needs in the cross-border market mean that there is actually a greater basis for value-based differentiation for platforms. In particular, international providers will be able to use there technical capability, as well as legal and jurisdictional support to differentiate from competitors.
“The willingness of platforms to develop that capability to support advice businesses is even more critical in the cross-border market than we’ve seen in onshore markets.”
New entrants
Inorganic acquisitions are not always the way firms can grow – office openings are also a big part of the advice industry.
So, could we see new entrants into the cross-border advice market?
Lake added: “We think the cross-border market as a whole has strong growth prospects and has demonstrated its resilience to macro challenges. From that perspective, we think is an attractive market to be in.
“But there are clear challenges involved in building scale and managing operating costs in this market. In particular, for platforms looking to enter the cross-border market, there are several large, established life companies that have deep experience and technical capability.
“There would be a lot of existing relationships to dislodge for any new platform entrant to be successful.”
