Consolidation within financial services continues at pace around the globe, with merger and acquisition activity being brought about by many factors including economic environments, shareholder value and financial institutions looking to be dominant amongst their competitors.
So, in short, a financial firm weighs up its ability to pivot quickly in an ever-changing economic backdrop, while considering its returns to shareholders, service level to clients, propositions to attract new clients and provide a broader range of services across existing clients while also ensuring efficiency across systems and people.
Regulation of member firms also plays a very large part in any M&A activity.
Banking licences have also played a large part in any potential acquisition as institutions look to bolt on an investment business as part of their proposition increasing their global footprint and gaining access to multi jurisdictions and of course clients.
With all of this brings a greater level of scrutiny by the Financial Conduct Authority as member firms increase in funds under management, becoming more complex in offering and size.
If a pension firm is being acquired as an entirely new offering the regulator quite rightly has more rules around firms giving pension advice. The regulator and Financial Services Compensation Scheme have in many instances provided redress to retail clients as firms are not equipped in this complex area.
What does it all mean for clients?
Well, they could end up in a company they do not wish to be part of, fees could be more costly within the new entity, and a long integration could mean poor client service, giving the client an opportunity to consider their options.
The brand being acquired may not be as well-known or carry the same kudos in terms of marketplace. Their investment adviser decides to move on, and clients move with that adviser, this is not unusual client practice if relationships are strong.
Clients must give consent to move onto the new acquirer’s platform, this could mean additional paperwork for clients along with other formalities around suitability and only adds additional stress to a client who might already be time limited, after all surely that is one of the reasons clients choose DFM in the first instance – that and potentially not being sophisticated investors.
What does it all mean for the sector?
Well, it creates a narrower field for investors to choose from, provides an opportunity for smaller, more niche/boutique firms to take advantage while also giving new entrants an opportunity to challenge. This is evident with the emergence of many more boutique firms over the past few years as M&A has continued at pace.
These are all risks when entities are coming together.
A question I have been asked is: 'What do the large investment firms offer that the smaller boutique firms cannot?'
Consumer duty has ensured an almost equal playing field when it comes to fees but surely the difference is service, personalised service, with too many clients being looked after who are potentially in the wrong 'bucket'.
