The landscape of mergers and acquisitions (M&A) in wealth management is undergoing significant changes, driven largely by evolving regulatory scrutiny. In a recent webinar, Jana Sivananthan, CRO at 7IM along with Andy Johnston, board Adviser here at Aveni provided insightful commentary on how these regulatory shifts are reshaping the M&A market. Their discussion highlighted the enduring rationale for M&A, while also underscoring the new complexities introduced by regulatory and economic factors.
The Persistent Drivers of M&A
Despite the heightened regulatory environment, Jana emphasised that the fundamental drivers of M&A activity remain strong. “The underlying themes that are driving [M&A] haven’t really changed,” he noted. These themes include demographic shifts, consolidation needs, and the push towards digitisation. With an aging population, there’s an increasing demand for financial advice, necessitating a robust infrastructure to cater to this demographic. “There’s going to be a challenge in terms of making sure that we’ve got enough advice firms to deal with all [our aging] clients and the client demand,” Jana explained.
Consolidation within the industry continues to be a strategic move for many firms seeking economies of scale and operational synergies. The FCA recognises this trend and, as Jana pointed out, supports firms in their efforts to achieve these efficiencies. “Firms will look to achieve some sort of synergies and economies of scale, and I think we’ve seen that already and we will continue to see that.”
Digitisation as a Key Driver
Another significant driver of M&A activity is digitisation. Jana highlighted the transformative impact of technology on wealth management, stating, “Firms that are able to leverage technology and digitisation are better equipped to deal with some of these challenges and actually are better equipped to provide the solutions for the clients.” The FCA has been supportive of technological innovation, encouraging firms to embrace digital tools to enhance their services and compliance efforts.
Regulatory Scrutiny and Its Impact
The increased regulatory scrutiny undeniably adds a layer of complexity to M&A transactions. Andy acknowledged this, stating, “The rationale for M&A remains as compelling as it has ever been. But the execution probably has a degree of additional complexity to it now.” He noted that changes in the economic context, including rising costs of borrowing and capital, further complicate the M&A landscape.
Jana added that regulatory pressures are already influencing the market, with some larger firms pulling out or bolstering their resources to meet new challenges. “We are seeing firms starting to think about how they structure their businesses, how they make sure that they are compliant, and how they make sure that they have got the right resources in place.” This trend is expected to continue, making it crucial for firms to adapt their strategies to stay compliant and competitive.
Looking Ahead: Challenges and Opportunities
Despite these challenges, both Andy and Jana remain optimistic about the future of M&A in wealth management. The regulatory environment, while demanding, also presents opportunities for firms that are agile and innovative. As Jana put it, “It can be both a challenge and an opportunity. If firms aren’t willing to embrace it, they are probably going to find themselves struggling. But if you are able to leverage technology and data effectively, it really does open up a lot of doors.”
The role of data and technology cannot be overstated. “The firms that are able to leverage AI and machine learning are going to be in a much stronger position,” Jana predicted.
Embracing Change
The impact of regulation on M&A activity in wealth management is multifaceted. While it introduces new challenges, it also compels firms to innovate and improve their practices. As the webinar discussion reveals, the key to navigating this landscape lies in embracing technology, maintaining robust compliance structures, and staying adaptable.
The wealth management sector is poised for continued M&A activity, driven by enduring demographic and technological trends. Firms that recognise and adapt to the regulatory landscape will not only survive but thrive in this dynamic environment. As Jana concluded, “It’s going to be interesting to see how it pans out over the next 12 to 18 months.”
