Transformative impact of consolidation in financial advisory and wealth management

Mike Foster

By Mike Foster, Chief Commercial Officer at Coleman Wealth

As we navigate a period of unprecedented change within the global financial advisory and wealth management sectors, a powerful wave of consolidation is reshaping the landscape. This trend is only set to intensify and is driven by a variety of factors. These include increasing regulation, rising costs, tougher competition, the need to be part of a bigger brand and smaller firms not being able to evolve as they need to meet client demands. The impact will be transformative and will create opportunities for firms, such as Coleman Wealth, to enhance the services offered, utilising technology and asset management innovation to deliver financial services that empower financial advisers and deliver better outcomes for clients.

Rising tide of consolidation

The global financial advisory, wealth and asset management sectors are undergoing a significant consolidation. A recent PWC survey forecasts that one in six such firms may be acquired or exit by 2027, due to regulatory pressures, rising costs, and the need for scale. Deal size and assets under management (AUM) are on the rise, with $541.5 billion AUM transacted in the first three quarters of 2024—an increase of 168% compared to the same period last year. In Europe, France has become a hotspot for smaller consolidation deals, with over five mergers last year led by Groupe Premium, Groupe Crystal, and Astoria Finance, which acquired multiple regional competitors. Meanwhile, the UK has remained the centre for medium-sized deals, such as LGT’s acquisition of abrdn Capital. Private equity houses have not been slow to the party either, with $9 billion in private equity backed transactions recorded in this sector last year.

In the Middle East, over half of CEOs anticipate that regulatory shifts will further fuel M&A activity, while in the Asia-Pacific region joint ventures are gaining traction as companies seek growth in new markets. Additionally, a consolidation trend is continuing to build in Asia, with 58% of CEOs now reporting a strong appetite for M&A, up from 40% last year.

Increasing regulation is a major driver

Increasing regulation is a major driver of consolidation in the financial advisory and wealth management sectors globally. For example, in the UK, the new Consumer Duty framework introduced in July mandates that advisers demonstrate fair value, while the FCA’s anti-greenwashing rules and Future Regulatory Framework add another layer of regulations for financial advisory firms. Similarly, in Switzerland, new requirements under FinIA and FinSA are raising standards for transparency, client protection and licensing, prompting many firms to consider merging or being acquired as they adapt to these more rigorous expectations.

Internationally, regulators are increasingly data-led, with increasing expectations for firms’ management information (MI). Boards are now urged to utilise improved MI for stronger governance and more rigorous business oversight. In the EU, firms are preparing for the Retail Investment Strategy, expected to impose stricter value-for-money and inducement requirements by 2025.

Revisions to the UCITS and AIFMD frameworks introduce tighter rules around liquidity management, prompting firms to start drawing lessons from the UK’s regulatory experiences as they navigate these evolving demands. As regulatory expectations intensify, firms are increasingly motivated to consolidate to build resilience, so they are able to meet these complex demands.

Array of other costs and the importance of scale are other factors

Increased regulation is only one driver of rising costs. Advisor firms and wealth managers face the need for greater investment in technology to deliver enhanced services, streamline processes, and ensure data security and reporting that meet both client and regulatory demands. Furthermore, the need for staff training and development is growing as firms need to equip their teams to navigate new regulations, understand evolving products, and stay abreast of market trends.

The need for scale is also key in today’s markets. Smaller firms often struggle to manage rising costs and meet demands for more sophisticated services, advanced tech and tools, investment platforms and propositions, with a greater array of financial products that larger firms can offer. These firms typically have stronger brand recognition, a more visible market profile, and significant advertising and marketing budgets, which enable them to reach out effectively to the market and attract potential clients.

Developing the capabilities of acquired firms is key

The benefits to financial advisory and wealth management firms of consolidation and merging to form a larger business are clear. However, not all firms that are looking to establish such groups have the right strategy or an approach that is focused on ensuring they enhance and develop the capabilities of the firms they acquire.

For instance, at Coleman Wealth, we believe in empowering our clients and advisors with comprehensive resources that enhance their financial understanding and capabilities. Many consolidators have maintained legacy charging structures, brands and customer propositions – which certainly look at odds in the UK for instance with the FCA’s drive for ‘good outcomes for retail customers’ – rather than implementing a standardised approach across their business, which is our strategy.

Being acquired is not the only option

Although the current market pressures are significant, being acquired is not the only option. For example, we are very happy to explore joint ventures or transactions where current owners retain equity in their businesses to realise greater proceeds in the future, benefiting from value creation through post-acquisition synergies.

We also provide firms with a suite of services to enhance their offer and boost their capabilities in an increasingly competitive market. For example, we have developed a sophisticated centralised investment proposition (CIP), moving beyond the traditional one-size-fits-all model. Through collaboration with external fund managers, it offers retail clients access to actively managed strategies while equipping advisors with advanced tools.

We balance our portfolios with non-correlated assets, prioritising risk-adjusted returns alpha strategies, integrating advanced hedge fund strategies within its premier building blocks as a diversifier across five core areas: carry, convexity, value, volatility, and other diversifiers. These strategies work together to manage risk and enhance returns by capturing yield differentials, providing protection during market stress, adjusting to shifting market conditions, identifying undervalued assets, and profiting from changes in market volatility. The principles guiding this approach are rooted in strong economic rationale, backed by extensive academic research, and are designed to be investable, scalable, and transparent. Each strategy undergoes long back-testing periods, ensuring resilience through market downturns, and their performance is validated independently.

In addition, we offer a range of other market leading services. These include centralised CRM systems, which provide executives with a comprehensive view of operations through customisable dashboards that track key metrics. Partnerships with institutions, such as Swiss private banks, deliver cost-effective custody solutions to reduce client expenses. Additionally, specialised lead generation services help secure high-quality leads with target demographics. Finally, a rigorous recruitment process ensures that only well-qualified professionals join the team, maintaining high standards across the organisation.

Focusing on enhancing outcomes for clients

As the M&A wave among financial advisers and wealth managers gains further momentum, such businesses need to be mindful of who they target for partnership. For instance, the UK’s FCA has initiated a multi-firm review to assess consolidation within financial advisory firms to ensure they are completed in a prudent manner with effective controls to deliver good outcomes.

Firms looking for partners or acquirers need to look carefully at the profile of the firms they are considering to ensure that they have the funding, resources, and proven track record. For example, over the past 12 months, Coleman Wealth has completed seven acquisitions, raising its total group assets under administration to $758 million. This approach underpins a positive outcome for both parties and, most importantly, delivers enhanced value and better outcomes for clients.