When It Comes To Wealth Management, Is Bigger Better?

A mega wealth management firm with a value of about US$4.3 billion – roughly the same amount that Portuguese football star Ronaldo wiped off Coca-Cola’s value when he snubbed the drink during a press conference earlier in the year – became a reality in August 2021 when three independent firms merged to create Leo Wealth.  

At the time, CEO Matthew Allain told wealthmanagement.com that the Hong Kong-US alliance would enable the firm to better care for the global interests of family office clients and would position the wealth manager to advise clients no matter where they were based in the world – particularly with the group pushing ahead with plans to expand into Europe and Singapore, while increasing its US footprint. 

Leo Wealth is just the latest in a series of high-profile mergers in the wealth management sector. According to the Echelon Partners RIA M&A Deal Report for 2020, a record number of mergers took place in 2020: 205 to be precise. This was up from 203 in 2019, 168 in 2017 and 125 in 2015. And, according to Echelon, 2021 looks set to break more records with deals such as Wells Fargo Asset Management being sold to private equity firms for US$1.1 billion in February 2021.  

Credit Suisse Group, meanwhile, is pushing forward with the purchase of Morgan Stanley’s private wealth management business in Europe (excluding Switzerland), the Middle East and Africa. While global fintech firm FNZ has completed its acquisition of third-party administrator Silica, as part of its plan to expand its wealth management services in South Africa. 

What is spurring on merger activity?

In a 2021 midyear outlook report, professional services firm PwC attributed the surging consolidation in the industry to increased interest by large players in the wealth management space, an increase in responsible investing as well as environmental, social and governance issues, and a positioning towards offering digital or cryptocurrency investing. The latter, in particular, requires new and relevant infrastructure and the expertise and skills set offered by the likes of crypto managers, whose highly-prized services can be acquired as part of joint venture partnerships. 

PwC’s Gregory McGahan and Arjun Saxena noted that acquisitions provide asset and wealth managers with “a new turnkey technology platform to expand their offerings to independent registered investment advisors and turnkey asset management program managers”. 

Are mega firms good for clients?

While PwC’s Asset and Wealth Management Deals Insights show a clear momentum towards consolidation, the question on investors’ lips is whether this is good or bad for them and the service they seek. 

According to Anthony Palmer, Group Commercial Director at Carrick Wealth, the decision to put your trust in a bigger firm does come with some downsides. “I think you risk becoming a number as opposed to a valued client with a company working alongside you to achieve your goals,” he says. 

You also stand to lose out on the flexibility that comes with working with a smaller, independent and more agile firm which is able to cherry pick the best options to suit each client’s unique needs. “Carrick Wealth, for instance, can pull in certain products or investments that originate from larger companies. We aren’t restricted to a certain brand or company,” explains Palmer. “This gives us the ability to pick the best of the best and deploy it in our bespoke client strategies.” 

Carrick Wealth’s philosophy is clearly aligned to the provision of personal investment solutions which align with the financial goals of each client. This bespoke approach hinges on close relationships and specialist advice, which does not sit in siloes but is open and accessible.  

Palmer adds that within bigger firms: “Advisors and clients have far less or no interaction with senior management. As an example, I am often on calls with clients and advisors to discuss their circumstances and to ensure we are putting all options on the table and working out which are best suited.” The bigger the firm, the more distant the senior talent becomes from the client, diminishing the value of that critical relationship.  

This points to a disconnect between the actions of the wealth management industry and the preferences of its clients. Certainly, in the African context, while the market may also be pushing towards bigger and bolder mergers, the continent’s wealthy and discerning investors should rather be looking to forge close-knit relationships which have the potential to develop over the years and which put the client – at all times – at the heart of the financial proposition.