Advice mega firms to emerge
The next decade will see the emergence of advice mega firms as more merger and acquisition (M&A) activity is expected, fuelled by an ageing adviser population and higher educational requirements, according to research from AZ Next Generation Advisory (AZ NGA).
In the firm’s paper on M&A, it said competition for quality assets was heating up and would intensify ahead of the education deadline on 1 January, 2026.
There would also be the emergence of multi-disciplinary super firms over the next decade which would be underpinned by strong demand for professional advice, attractive advice margins, fragmentation and modernisation.
Paul Barrett, AZ NGA chief executive, said: “These advice mega firms will be akin to the mid-tier in accounting and professional services. The super firm strategy will be led by entrepreneurs not institutions. It will be driven by investment in the advice margin not the product margin. It will be powered by M&A to enable entrepreneurs to acquire capability and capacity.
“M&A activity is heating up, fuelled by record low interest rates, an ageing adviser population and a general realisation that scale and capacity are critical for sustainable long-term growth. In the next 12 to 24 months, a wave of accounting and advisory opportunities are expected to hit the market, as many principals retire ahead of the Financial Adviser Standards and Ethics Authority’s (FASEA’s) higher education requirement.”
The four main types of M&A were acquisition of a client book with an adviser, client book only, company buy, and passive income stream. However, the option of passive income stream was to be avoided as buyers were “effectively attaching a deteriorating margin to their home base”.
The best-matched firms were those which had similar motives, were patient, flexible and able to add operational efficiency and value to their combined business.
However, deals which were ill-considered could result in disruption, increased cost and complexity and value destruction. There were 11 reasons for M&A failure, it said, including acquisition costs, misalignment of values, lack of project management skills and nasty surprises.
Any firm considering an M&A deal needed to consider why they were seeking to make the deal, what they were trying to achieve, possible synergies, the capacity for growth and their capabilities.
Barrett said: “M&A is an important tool for business growth and in the next three years many advisers will be tempted to do a deal but just because you can, doesn’t mean you should”.
AUTHOR
Laura Dew
Recommended for you
Adviser losses this week are quadruple the same period a year ago, with the industry falling into negative territory for the last 12 months.
Colonial First State has announced the latest manager to join its Edge managed accounts menu, focusing on providing investors with a strategic income.
Rising advice fees has prompted Radar Results to increase its price guide to a minimum of $3,000 per client to reflect the changing shape of the adviser landscape.
Investment consultancy Ascalon Capital has appointed a new partner, who joins from 20 years at Zenith Investment Partners, as well as a new chief executive amid a “bold new chapter” for the firm.
