M and A

BEST OF 2013: Consultant Sees Further M&A In UK Wealth Market, Frets Over "Orphans"

Tom Burroughes, Group Editor, London, 2 January 2014

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M&A in the UK’s fractured wealth and financial advisory sector is brisk and one figure with a particular vantage point on the scene is Brian Spence, a consultant helping firms to make sense of what is going on.

This publication is re-issuing the best interview items of the past 12 months.

Merger and acquisition activity in the UK’s fractured wealth and financial advisory sector is brisk and one figure
with a particular vantage point on the scene is Brian Spence, a consultant helping firms to make sense of what is going on.

The founder of Harrison Spence Partnership, Spence, managing
partner, has witnessed seismic shifts in his 30 years’ management experience
within the financial services sector. And not all of these changes make him
happy. Some of them give him great cause for concern, such as the issue of ordinary savers no longer being able to afford financial advice.

There certainly have been plenty of large-scale wealth management
deals of late, such as Julius Baer’s purchase of Bank of America Merrill Lynch’s
non-US business. Further down the size rankings, however, wealth management “consolidators”
such as Succession and Focus Financial have been busy adapting to a new UK regulatory
landscape. There is more to come.

It was the opportunity afforded by changes which prompted
Spence in around 2008 to establish his consultancy to work with financial
services firms in the retail and institutional space. Today, the business helps
firms to improve profitability and adapt in the face of increasing regulation, as
well as facilitating sales, mergers and acquisitions. It also provides bespoke
and project based services across the sector.

Demand for its M&A expertise has made that a focus in
the last couple of years.

“I went to bed one day a consultant and woke up the next
morning to find I was an M&A broker,” Spence joked. Senior partner Alan
Marks joined the firm in 2010, bringing with him 25 years’ experience in
financial services with a focus on change management and strategic planning.

However, it has taken time for this momentum to take hold
and, indeed, for the industry to wake up to the impact of increasing
regulation. Spence recounted his experience of presenting to a variety of
investment managers and other financial services firms on the implications of
the Retail Distribution Review reforms a couple of years ago.

“We came away quite depressed to see that among such
high-end decision makers, no-one had a clear idea what the threats and
opportunities of RDR were,” he said.

“Very few in the industry were able to envisage a future
beyond RDR. A handful of consolidating firms have taken a huge gamble and built
their acquisition models on a hope that IFAs would move away from their
ideology of independence towards a model of restricted advice. These firms have
visualised the landscape and made that a reality,” Spence said.

He noted that in the case of Bellpenny and Sanlam, both
these firms are foreign-owned (US and South
Africa, respectively), showing how overseas firms see the
UK
market as ripe for consolidation.

One of the risks in any M&A deal involving a “people
business” such as financial advice is buying a firm, only to see some of its
key employees defect (the Towry/Raymond James legal tussle comes to mind), so
it is important to match the right buyers to sellers of IFA firms.

“Some 75 per cent of firms that are approached by
consolidators are not suitable,” he said. “Consolidators use us to source the
right businesses that suit their character.”

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