How much more consolidation can the industry take?

23rd December 2021

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Robbie Lawther

Just like 2020, this year will hopefully not live long in the memory. It was full of political blunders and tiny glimpses of normality.

But, at least for the global financial advice industry, business never stopped. When I was asked to write a review of the stories I had written in 2021, I forgot a lot that had happened and was rather surprised how much had taken place over the last year.

As I am the unofficial M&A correspondent for International Adviser, I thought it would be right to start with a look at a couple of deals which will impact the global advice sector for many years to come.

In November, Utmost Group completed the acquisition of Quilter International for a total cash consideration of around £480m ($640m, €563m). This deal has taken one very large player out of the international life market and has also seen the end of Peter Kenny’s tenure at the helm of Quilter International.

Some could say that this is the beginning of the end for the old school international life industry, but Utmost has an ambitious strategy to become number one in the sector. It still sees promise in the market – and maybe that is because there isn’t much competition left.

Another deal with a big global impact is the sale of Praemium International. In November, I reported that the deal had entered the “final phase” and just a few days ago, Morningstar had announced it had bought the UK and international operation for £35m.

It will be interesting to see what plans Morningstar has for the business, as the international platform market is rather like the life sector – you’d struggle to get enough players to get a decent five-a-side football match going.

M&A UK

I cannot go on without talking about acquisitions and deals made in the UK market. In the past year, I had written about probably nearly 100 deals in the UK alone, some big and some small.

If 2020 was the rise of private equity in the UK advice market, then 2021 was the rise of foreign firms in the UK financial advice industry.

There were several deals that caught the eye last year. Firstly, within the very early days of 2021, US-headquartered Focus Financial set up its subsidiary Connectus Wealth Advisers to buy Cheshire-based Watterson Financial Planning. In October, Connectus acquired Trident Financial Planning.

The appeal of the UK market was not lost on US companies, as private equity firm Flexpoint Ford completed its acquisition of UK financial planner AFH Financial Group for £231.6m in June.

Even more surprisingly, South Africa-based Alpha UK Holdings acquired a majority stake in Wimbledon-based IFA firm Holborn Financial in September to gain a foothold in Britain.

The UK advice industry has been gaining a lot of traction and intrigue globally but not all companies see the promise of the market. South African-headquartered Sanlam sold off its UK wealth businesses in 2021.

But, this was an anomaly in what was an M&A heavy year for the UK market. Already one proposed deal in the works for 2022 is the sale of Succession Wealth, as its private equity owner Inflexion is expected to launch a formal auction of the IFA business during the early part of the year.

Consolidation in the UK advice industry has to slow down at some point, doesn’t it?

CII/PFS

One of the stories that went under the radar was the saga of the Personal Finance Society (PFS).

Over the course of the year, the Chartered Insurance Institute (CII) received criticism from advisers for proposing to deregister the PFS as a cost cutting exercise.

In September, the CII unveiled its Shaping the Future Together consultation to allow members to have their say on the professional body’s strategy for the next few years.

But in response to the consultation launch, Sarah Lord, president of the PFS, said that the society “regretted” the CII did not engage with the PFS board collectively on the drafting of the consultation document. It was also “disappointed that over the last few years the CII’s education offering, including the qualification framework and pathways has not kept pace with the needs of the profession”.

The future of the PFS is up in the air. Unfortunately, the CII wants the professional body to show its value, but supporters would argue it is already evident, as many advisers need associations like the PFS to progress in their careers.

UAE regulation

One of my key regions is the Middle East, and in 2021, the UAE proposed a range of regulatory changes to follow BOD49.

The UAE is preparing for a major revamp in regulation for its advice sector in a bid to meet global compliance standards.

In May, the Securities and Commodities Authority (SCA) published its ‘Regulations Manual of the Financial Activities and Status Regularisation Mechanisms’, giving a comprehensive guide on how to get a licence and conduct business in the country.

The handbook consolidates and restates the existing licence-specific rules and regulations and has put 36 existing SCA-registered financial advisory firms on a one-year compliance deadline, ending 9 May 2022.

In September, life insurers authorised by the Central Bank of the UAE (CBUAE) were told that they are liable for the advice given by distributors of their products.

The UAE has also tried to update its legislation to improve its wealth management offering – including a new trusts law and family office regulation.

But former Zurich Middle East chief executive Walter Jopp told me in April 2021 that some UAE advice firms “will not survive” regulatory changes.

The UAE is an interesting region. Some may see this as the end of the financial planning market in the country, but some see this as the start of the new beginning. In December, I spoke to Prosperity chief executive Greg Stockton about his firm’s expansion plans in the UAE.

UAE advice firms will have to adapt and for some this means looking further afield to grow its business like Mondial, which has recently set up an advice joint venture in France.