We talk to a UK wealth management and financial services group after it announced another business purchase, and teased out the approach it takes.

When UK-based wealth manager Hurst Point Group announced a few days ago that it had agreed to buy wealth management and corporate solutions practice Helm Godfrey, it shone a light on M&A activity in the middle ranks of the UK sector.

Helm Godfrey, which has 65 staff and is based in London, gives Hurst a wider footprint in London and southern areas of the UK.

The transaction also shows how private equity money is an important element in creating such corporate marriages today. The lead PE investor in Hurst is Carlyle. (On the debt side, Investec and Ardian work with Hurst.)

The acquisition is subject to certain conditions, including regulatory approval. 

As a result of the transaction, the combined group will have total assets under advice and management of about £8 billion ($9.9 billion) and 120 advisors.

As far as John White, managing director of Hurst Point’s financial planning division, Argentis, is concerned, the deal will significantly expand Hurst’s business in a variety of ways.

“We’re acquiring some real investment skill here,” he told WealthBriefing in a meeting in The City a few days ago. Helm Godfrey has a strong roster of active fund managers. The acquired business has a statistically-driven approach to active management, which makes it a more sustainable business model, White said. 

An important part of the Hurst Point approach is constructing a “co-location” model. This is about setting up a financial planning and investment management operation in the towns or cities in which it establishes a presence.

“Having hub offices in strategic areas is part of my job. The acquisition has created a new London home,” he said. 

Integration and culture
White said Hurst Point prides itself in taking time and trouble to ensure that acquisitions are a strong fit and that they are effectively integrated. This is a different tack to just aggregating firms under some kind of umbrella.

“We’re a consolidator as opposed to an aggregator. The alignment issue is very important,” White said.

The Financial Conduct Authority’s new Consumer Duty regime in coming into effect in July, obliges firms to demonstrate that they are providing consumers with information that will help them to make effective and informed decisions about financial products and services. Such requirements will separate strong from weak business models, White continued.

“This makes meaningful integration more important,” he said. 

Hurst Point is not going to embark on a “mass of deals in quick succession,” preferring a more considered approach, White said. “We have a good pipeline.” The firm is looking at areas such as the Midlands and northern parts of the UK.

When buying firms, a long-term approach means that it is important to consider the age profiles of the advisory/management teams one is buying, he said. 

Details
Among other details of the merger, Helm Godfrey’s investment management team will become part of Hawksmoor, Hurst Point’s investment management division, while the financial planning team will become part of Argentis, its financial planning division.

Last year, Hurst Point acquired nine firms, including Sussex-based Metis Asset Management and Metis Wealth, as well as advice firms D Heaton, Wealth Creation & Management, and Robinson Financial Solutions. It also acquired Gore Browne Investment Management. 

This news service asked White how it ensures that its integrations work out.

“Undoubtedly ensuring we are aligned in our shared philosophy of what financial planning means, and how that should be delivered – those would be the key aspects, along with areas such as views on costs to clients, passive versus active investment management, and a goals-based approach using cashflow modelling, which is central to the advice. The IT and systems, although important to integration, are process driven and so less of a cultural barrier and more a practical matter,” he replied. 

In buying a firm, it is important to consider the demographic profile of the team, White said. 

“They need to look hard at the demographic profile of the clients so that they can model income expectations and ensure the propositions in place match the need of those demographics. The demographic of the team is important to ensure that the advisor profile is either likely to continue to advise the clients over the medium to long term – and, if shorter, the financial modelling of a deal needs to take into account the cost of bringing in new advisors to look after clients,” he said. 

There have been a lot of M&A deals in the UK wealth sector, but there are risks to consider. 

“I appreciate and understand the attraction of M&A, and the growth opportunities available to investors in this sector, but I think some entrants think it is easier than it actually is. The regulatory framework makes achieving growth and profitability more of a challenge than in many other global markets,” White said. 

Finally, this news service asked White how rising interest rates affect the market for acquisitions. 

“Access and cost of debt will definitely impact on deals in the short term, which is in my view no bad thing, particularly if it means acquirers spend the time on integration and making their propositions more consumer led,” he added.