Advisor “scarcity”
A confluence of factors are making the need for wealth management and investment advice greater than ever: increasing life expectancies, rising taxes and inflation, and the continued Great Wealth Transfer — to name a few. However, experts have noted that advisors are exiting the industry faster than they are being replaced. The “scarcity” of experienced advisors, caused in part by an ageing workforce as well as the increasing cost of compliance, will be felt “much more over the next 10 years”, according to the former executive at True Potential. Talent acquisition and retention is therefore an increasingly important differentiator among firms, with many now tackling this issue by launching in-house training academies.
“There, just simply, aren’t the number of experienced recruits out there that there were 10 years ago,” the former SJP executive said. This has led to the emergence of multi-advisor businesses within SJP, which has 2,500 partners and 4,500 advisors. “Over the last few years, you’ve seen the number of partner businesses hold fairly steady, but the number of advisors has increased.” The role of its Academy has shifted from creating partners to training advisors and adding them to existing businesses. “Through a process of internal consolidation…, it’s plausible to think that that 2,500 number will stay exactly where it is, or indeed decrease, as businesses come together and you get a smaller number of larger multi-advisor businesses.”
The expert described this as a “competitive advantage” that “you’re now starting to see others seeking to emulate” as they too feel the shortage of experienced advisor candidates.
“The scarcity of advisors is something that we’ll probably feel much more over the next 10 years.” – Former executive at True Potential
Valuations
Interviews also suggest that the scarcity of growing businesses is one of the main reasons for elevated valuations. The former True Potential executive remarked that “generalising too much is very hard, but you see businesses with GBP 5bn in AUM hardly making any money”. Over the last two years these businesses have been bought primarily by private equity firms “because they think they can be part of the conversation, so they’re buying it as a platform”.
Meanwhile, some players have been “trying to bundle IFAs and arbitrage a four-times multiple into a seven-times multiple… through the aggregation process,” the former SJP executive said. “There are a number of people playing that game at the moment and, as and when the market cools, I would expect those multiples to fall, but I would say it’s a seller’s market at the moment.”
There are some “fairly punchy multiples in the market at present”, the specialist added, citing 7-8x EBITDA and 6-7x recurring income. In another Interview, it was suggested that valuations are in the range of 2-3% of AUM. “There’s been quite a lot of competition from private equity-backed consolidators, mid-sized firms trying to grow, there’s quite a lot of demand for good advice or good advisors,” the former divisional leader at Quilter said. “The multiples are not going to be going down any time soon, I don’t think.”
“It’s definitely blown out at the top end at the moment. People are talking about 7-8x EBITDA, 7-8, 6-7x recurring income. There are some fairly punchy multiples in the market at present.” – Former executive at St. James’s Place Wealth Management
On the topic of fees, most specialists we’ve spoken to acknowledged that platform and product fees are already low with limited scope to go lower, but that there could be pressure on advice fees going forward.
Digital ascent
Technology is another big trend discussed in Interviews and our experts say that younger demographics warming to digital wealth platforms is positive for the industry, not a threat, as this cohort represents a future client base as their lives become more complicated. “That’s a pretty tried and tested path and every year, people move from the D2C to the advised channel, in larger numbers than they go in the other direction,” the former SJP executive said. “Overall, I would be positive about what this means for advisors.”
However, we heard that the robo advisor market, which is increasingly the starting point for many first-time investors, has yet to be “cracked” in the UK. Many such offerings launched in the past five years have already been shuttered and one of our specialists doesn’t see robos putting a “meaningful dent” in the wealth market within the next five years. They also remarked that the US has been more successful in this regard.
They are nonetheless expected to gain ground in the years ahead as technology improves and consumers become more accustomed to these platforms. As we heard, full-service firms are unlikely to incorporate these offerings into their businesses, as it could cannibalise their own advisor forces.
Ultimately, the availability of a “scaleable, attractive way of servicing lower-AUM clients” could be a “real winner” for the industry, one expert said, due to there being an abundance of unserved demand for advice. “In the meantime, the existing businesses are all doing well and generating good margins and I think it’s still a great sector of financial services in the UK.”
“I don’t see robos in the next five years putting a meaningful dent in this marketplace.” – Former executive at Quilter
To find out more about these and other UK wealth management trends, click below to view the related transcripts.
Related Transcripts
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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