Company insights: global wealth and investment management

A former director at Julius Baer Wealth Management told us the company grows its AUM primarily through referrals, personal networks, professional advisor acquisition, and cold client outreach. They said the wealth management industry is becoming more competitive, noting that approximately 45 organisations may contact one individual who has had a liquidity event. Success for Julius Baer, they added, is to at times offer a more personal touch than the competition.

We also heard the company’s lending arm has many synergies with its wealth management business, which facilitates client conversions from the former to the latter. On the question of whether increased flows into alternative investments and private equity could impact Julius Baer, our expert remarked that the company’s alternatives platform could benefit from further development to remain competitive. 

The Interview also explored Julius Baer Wealth Management’s fee structure, which we were told is typically 1%, with a possible 25-30% haircut for portfolios with GBP 50-100m. They also noted that the 1% fee has been in practice since 2009 and that margin pressure could occur. However, given long-term industry pricing trends, it is also plausible that it will not change. “I think there’s probably a bit of fee pressure… but I also feel that, weirdly, it’s an industry where prices haven’t gone up for a decade or more.” According to our specialist, Julius Baer should be relatively well positioned in a recessionary environment given its risk-averse and “focused” nature. 

In a Forum Interview on Quilter, a former divisional leader at the company said they believe 50% of current outflows are driven by independent financial advisors re-platforming, with 30% due to some “instability” within Quilter’s financial planning unit, and 20% due to investment crystallisation. While 50% is not a “great number”, they noted that market share of the platform is increasing.

We also heard that Quilter has successfully weathered the turbulence from re-platforming to FNZ, with the solution now competitively priced and working as intended. “A lot of advisors were nervous about putting their client’s assets [in] or joining a platform that was mired in a little bit of a bad history, from a legacy point of view,” the expert told us. “However, the platform was successfully delivered, it works really, really great, it’s a pretty strong proposition.”

In the Interview, our expert also said that because 65-70% of Quilter’s fund universe is managed by a third party, it misses out on certain fees. Pushing migration towards Quilter’s Investors team therefore makes strategic sense, we were told. “One of the best things that the business can do going forward is to try to migrate some of that third-party money back into [its] Investors proposition.”

On the topic of acquisition prospects, we heard there could be a 25-35% premium paid for  Quilter in today’s operating environment, and that a player such as NatWest would gain immediate market access to some 2,000 advisors. However, such a transition could take 18-24 months, and there could be 15-20% AUM leakage (industry average) as well as execution risk during transition.

Another specialist interviewed by Forum shared their insights on St James’s Place (SJP). The IFA at a Leicestershire-based financial planning company told us it takes SJP 2-3 years to recoup its academy cost for training new advisors. However, there could be leakage in that time and after as advisors look to broaden their horizons. 

We also heard that SJP pays 4-5x recurring income to IFAs to move their clients to its  universe of funds, with pressure to potentially move to 6-7x by 2023. Some IFAs with portfolios over GBP 10m can be offered 7% of portfolio value. 

Additionally, the Interview suggested that there may be more IFA portfolios available for acquisition while market performance is down and advisors look to exit. SJP, we were told, might have to extend its current universe of funds to remain competitive.

Turning to North America, we heard from an executive at a New Jersey-based financial advisor and recruitment company that due to increased deal competition, RIA M&A multiples are between 6x and 15x – and could persist for the foreseeable future. “Competition is really what is driving everything,” we were told. “It’s what’s keeping it a seller’s market, there’s more competition for the same group of advisors and that’s what keeps multiples high. Could they possibly go higher? They could.”

We were also told that while RIA firms continue to offer additional services to stave off fee compression, fees are likely to compress as competition heats up.

Meanwhile, we heard that M&A volumes are trending higher compared to recent years and should continue to do so into H2 2022 and 2023, particularly as smaller firms struggle with fee compression. According to our specialist, those firms analysing sellers should look for consistent growth, efficient infrastructure, strong talent  – including next-gen advisors – as well as a non-ageing client population, and profitability.

To explore all these insights in more depth – and discover more – click on the Forum transcripts below.