Four years after a merger and a subsequent rebrand to mark its integration, Evelyn Partners announced it would sell its professional services business formerly known as Smith & Williamson.
Now a pure-play wealth manager, Evelyn Partners followed with another sale of its fund governance and administration services business in July.
The transactions are two of several recent deals in the wealth management industry as companies look to simplify their models and focus on core business.
Close Brothers, for example, sold its wealth management division in March, a week after wealth manager Brooks Macdonald completed the sale of its international business.
More recently, law firm Irwin Mitchell sold its financial planning and wealth management arm to Shackleton, while Ravenscroft completed the sale of its wealth management business to Titan Wealth last year.
“It’s much easier to consolidate a number of advice businesses than it is to bring together businesses which are quite different [and] have different regulatory requirements that sit over the top of them,” says Rachel Allen, a lead consultant at Simplify Consulting.
Besides the volume of regulation, capital requirements increase for more complex businesses, she says. “If you’re talking about complex organisations, that’s huge amounts of money just sat there, not doing anything [but] waiting for something to go wrong.”
Simplification doesn’t mean you’re then static and vanilla.
Daniele Funaro, financial services partner at Bain & Company, a management consultancy, also cites regulation as a factor driving a trend towards simplification.
“Managing a broad set of activities, across multiple legal entities and jurisdictions, often brings disproportionate costs and compliance burdens. Many firms are concluding that simplification is a prudent way to reduce risk and focus their efforts where they can achieve the greatest impact.”
While business models are being streamlined, this does not necessarily limit the scope for innovation.
“This simplification we’re seeing is enabling people to . . . strip things back to the core purpose they have as wealth managers or financial advisers,” says Emiko Caerlewy-Smith, a partner at consultancy Elixirr. “But that doesn’t mean you’re then static and vanilla and just have to do really focused, core, vanilla wealth management.”
With hyper-personalisation being another trend in the wealth industry, which has arisen from the consumer duty, she says: “It’s far easier to do if you have a simplified product set.
“If you put together the most personalised portfolio offering for one client, but you also have tax and legal services and all these other financial products, suddenly that hyper-personalised experience around portfolios becomes a bit clouded, and it’s far more difficult to give the experience that a ‘next gen’ consumer would want to have.”
Amid a predicted increase in the number of high income millennial and Gen Z clients over the next five years, Funaro at Bain says these “digital natives” expect personalised journeys, efficient onboarding and real-time insights, which require investments in technology at scale.
“These investments only generate meaningful returns if deployed at scale,” he adds. “Hence the move to focus on core business lines and to exit non-core operations.”
Macroeconomic pressures
The wider economy is also making the wealth market a harder place to make money, says Allen at Simplify Consulting, with preferences changing for cash products.
“With interest rates being as high as they have been over the past few years, many organisations are seeing a lot of their transfers moving into cash and to banks.
“Even in the retirement space, annuities are experiencing a real growth again, because there’s that guaranteed investment income against an economic background which is bumpy and difficult to get returns in.
“If you then combine that with things like wage inflation and the national insurance increases that organisations are having to cover, that impacts the overall profitability of an organisation on the whole, and makes them look at their overall cost base.”
‘The logic of vertical integration is still sound’
There is, however, still a case for vertical integration despite players in the wealth management industry simplifying their business models.
“If you look at some of the big life companies that have invested in vertical integration, the logic is still sound,” Allen says. “That ability to [generate revenue] at each part of the process, on your funds, platform, and advice. But not everybody’s managed to make it successful.”
Wealth managers, financial advisers and fund managers are also increasingly trying to buy into the distribution value chain, says Caerlewy-Smith at Elixirr.
“If you have a really core discretionary fund management offering, and you have the adviser network to distribute that offering, and you might have the digital platform to enable other advisers to buy your offering, that’s still core, because it’s all the same product.
“So concentration, simplification, [and] focus shouldn’t be seen as something that’s limiting growth. I think it’s the first stage of growing in a different, more risk-managed and measured way.”
Conglomeration is not off the table but partnerships are emerging as an alternative way for businesses to come together.
“I think there have been benefits to wealth managers trying to get value-added services,” Caerlewy-Smith says. “At the end of the day, this is all about, ‘how do we create good outcomes for customers?’ And what customer isn’t going to want legal services, and tax services, and all these other things that go around their finances.
“But maybe what people are now starting to learn, in a new generation where partnership is far more embraced and inclusive, [is that] they don’t have to do that through owning those kinds of services.”
Recognition is also growing across the industry that simplified business models often deliver better outcomes operationally and strategically, says Matthew Lonsdale, a consulting director at Davies.
“When companies focus on their core business rather than diversification, this often results in better growth,” he adds.
“Rather than pursuing diversification without clear strategic alignment, firms are now more focused on whether the acquisition of new business truly complements their core activities, contributes to long-term sustainable client life cycles and maximises business value and profitability.
“This reflects a shift towards simplification as a strategic manoeuvre aimed at building a stronger business with healthy growth potential.”
The trend for simplification therefore looks here to stay. “What we’re seeing is more than tactical restructuring,” says Funaro at Bain. “It marks a broader strategic shift in the wealth management industry.
“Focus and simplification is becoming a conscious choice to build scalable, resilient, and client-focused operating models.
“With margin pressure, rising costs and evolving client expectations, this focus is increasingly a source of competitive advantage.”
Chloe Cheung is a senior features writer at FT Adviser
