Wealth management takeovers are gathering momentum with Royal Bank of Canada (TSX:RY)’s (Royal Bank of Canada (TSX:RY)) acquisition of one of the largest and oldest wealth management firms in Britain, Brewin Dolphin Holdings Plc (LSE:BRW) (Brewin Dolphin Holdings Plc (LSE:BRW)) the latest deal off the rank.
NatWest Group PLC (LSE:NWG) (NatWest Group PLC (LSE:NWG)) is said to be one of many banks circling Tilney, Smith, and Williamson for a price of somewhere between £2.5bn-£3bn while Abrdn PLC (LSE:ABDN) (Abrdn PLC (LSE:ABDN)) bought interactive investor last year.
Why the sudden interest in wealth platforms? Data from the World Economic Forum suggests an answer.
It estimates the UK pension savings gap will grow five times to roughly £23.8tn by 2050. Yes, that is trillion and it is a huge number.
How the gap can be closed is another one of the headaches facing the government but greater emphasis on individuals taking control of their savings, supported by more tax incentives, is one option.
“The ageing UK population combined with regulatory changes such as auto-enrolment into workplace pension and the retirement freedoms mean there is a shift towards people taking more personal responsibility for their long-term savings,” said Tom Selby, head of retirement policy at AJ Bell.
Advances in technology and consumers’ digital expectations are also contributing to an “increase in activity and acquisitions” according to Susannah Streeter, senior investment and markets analyst.
“Investment platforms, in particular, have made investing more accessible than ever and the fact people want online solutions, as they do in most aspects of their lives, drives assets onto platform-based wealth managers,” Selby adds.
Attitudes on what retirement is are changing as well, which means greater flexibility over investment is a necessity for the millennial where ‘traditional’ retirement isn’t really an option.
“The idea of retirement is changing, people are less likely to retire on a particular day – they may choose to slowly decrease their working hours over a period of years – some may choose not to retire at all,” said Helen Morrisey, senior pensions and retirement analyst at Hargreaves Lansdown.
“Many millennials will work the majority of careers without the traditional view of what retirement is and what they should do and so will approach retirement able to make use of these freedoms to plan the retirement of their choice,” Morrisey added.
All these factors together make investment platforms attractive to the public, and that makes them attractive propositions for potential buyouts.
One could safely assume, therefore, that the bigger companies, such as abrdn, RBC, NatWest and the major banks have spotted this trend, and are trying to get in while it’s still relatively cheap.
Let’s take Brewin Dolphin, for example, which saw its income rise from £339mln in 2019 to £406mln in 2021,while discretionary funds climbed from £40.1bn to £49.8bn.
That’s growth that these platforms will continue to see, according to analysts, and that will undoubtedly push the price and valuation of these companies higher.
Wealth management firms and platforms “are seen as attractive businesses because they often have high-profit margins, strong cash generation and benefit from a number of long-term structural growth drivers,” according to Selby.
The likes of RBC and abrdn got in early before having to pay at a premium, and possibly set the trend for the market as others, such as NatWest, pursue their own takeovers.
As the platforms continue to grow in popularity, don’t be surprised to hear of more and more takeover opportunities as the larger companies scramble to ensure they don’t miss the proverbial hype train.