With M&A in wealth management continuing to be a feature of the industry, this article examines some of the trends at work in the UK, and further afield.

There has been a great deal of merger and acquisition activity in the world's wealth management and private banking sectors in recent years. Recently, for example, Barclays sold its Hong Kong and Singapore private bank to OCBC; Societe Generale sold its private bank in Asia to Singapore-listed DBS, while in Europe, Royal Bank of Canada sold its Swiss private bank to Banque SYZ. Luxembourg-headquartered Banque Havilland has bought Switzerland's Banque Pasch; last year, Union Banque Privee, the Geneva-headquartered bank, bought private banking businesses in Asia and Zurich from Coutts. A number of forces are work, some of which are familiar to readers, such as the need for scale as regulatory costs mount. Other drivers may not be as obvious. In this article, Alex Shaw, director of Progeny Wealth, a UK firm, examines UK events. The editors of this article invite readers to respond; we do not necessarily agree with all views of guest writers, but are grateful for contributions and debate.

The prevalence of small to medium-sized businesses in the UK wealth management industry has driven a year in which firms have been incredibly active in the Mergers and Acquisitions sphere. The hoovering up of smaller firms by larger competitors, or those looking to gain a foothold in the market, is evidenced by the figures: the number of mergers taking place in 2015 was up on 2014 (124 to 83) while the assets transferred in those deals was down from $460 billion to $410 billion suggests that rather than the focus being on big-money deals, medium sized firms are attempting to consolidate their hold in the market.

It isn’t just larger UK firms that look upon the assets of other firms hungrily, with the favourable circumstances in the UK prompting foreign interest in these firms. Low interest rates, recently introduced pensions freedoms and continued growth in the UK property market make moves into the UK’s fragmented market especially tempting.

This can be seen in Société Générale’s acquisition of Kleinwort Benson. By combining the latter with its’ own private bank, Hambros, Société Générale created a wealth management arm with control of £14.2 billion in assets.

The imposition of the Retail Distribution Review, under which financial advisers have to agree a fee up front rather than accepting a commission as a reward for recommending or selling particular financial products, is also a key factor driving mergers and acquisitions in the sector. A stricter all-round regulatory framework and a growing focus on technology and digital tools, with their potential to cut out the middleman to a significant degree, creates a backdrop against which economies of scale and the acquisition of specifically lucrative skill-sets mean that merging becomes the natural choice.

Firms operating under the £5 billion range are struggling to manage by themselves, making offers from larger firms more appealing to increase efficiency. For these larger firms, increasing M&A activity is a simple, practical decision. When Standard Life purchased AXA Elevate, it was clear this would increase market share and brand reputation at the same time as allowing cost reduction driven by economies of scale.

In other cases, larger companies with no history of working in the sector are acquiring wealth management firms. This allows them to gain access to this lucrative and growing sector of the UK market without having to go through the arduous process of creating expertise of their own from scratch.

Certainly these trends also appear in the US. PwC reported a major spike in wealth management M&A deals, rising from 29 in 2014 to 82 in 2015. In spite of this, the value of the disclosed deals remained fairly steady at around $1.5 billion, with a majority of that comprising of Financial Engine’s purchase of Mutual Fund Store, in a deal valued at $584 million, and Blucora’s purchase of HDV Holdings valued at $580 million. While the value of the deals themselves does not provide a clear indicator of value of assets, it does provide a degree of insight. The majority of the activity in the American sector has been in smaller firms, as in the UK.

The focus on foreign buyers, however, does not appear to transfer outside the UK, as only two buyers are not based in the US. Additionally, wealth management practices were sold in 2015 by Barclays, Deutsche Bank and Credit Suisse, all to specialist wealth management firms. This points somewhat to certain differences between the markets in the UK and the US, and highlights the appeal of the UK market to foreign investors.

For those individuals faced with a situation in which their wealth management firm or firms are merging, they will naturally care much more about what impact this will have on their own individual wealth management, particularly if their wealth manager moves as part of the M&A, as opposed to the overall value of such a move to the shareholders of the firms involved.

The financial landscape of the UK is finding an increasing number of people seeking the advice they need to make the most of their liquid and other assets - one where the right wealth managers can be regarded as an increasingly profitable source of growth and revenue.

The first instinct may well be to follow the wealth manager but the prudent advice is always to take the time to look at the bigger picture. Yes, a valued advisor may have been replaced, but time spent seeing whether this actually has a detrimental effect, or whether it is indeed outweighed by the benefits driven by the M&A, will prove to be time well spent.

In many cases the M&A may produce positives such as a reduction in charges or an increase in fund choices or contract flexibility. In the case of a change of fund manager, the situation is more nuanced.

If success is attributed to the performance of a specific, and now absent, individual or group of individuals, then the time may well be right to either follow that individual or seek out an alternative solution.