Sovereign SmartViews: Why would you buy a great brand simply to dismantle it?

The rapid consolidation amongst wealth managers reached a fever pitch last year with over $40bn of announced deals and levels of activity unseen since the financial crisis. But while many commentators have turned their focus now to large cross-border transactions, for Sovereign, we still see huge opportunity in the UK’s vibrant independent sector.

According to our proprietary analysis, the top 10 leading independent players in wealth management grew their profits by an average of 18% last year – a strong outcome in any sector – let alone one which is going through huge change.

The increased cost of regulation, pressure on fees as well as the threats from robo-advisors and the competition posed by the flood of money in passive funds, have left many fund managers facing higher fixed costs at the same time as reduced fees.

But we understand, more than most, that the attraction of selling is a double-edged sword. On the one hand, consolidation is an obvious next step in order to achieve economies of scale, but on the other, the brand that you have put your heart and soul into creating, with all of the loyalty that has been brought with it, can simply disappear when part of a bigger business.

A number of wealth management businesses, that opened their doors decades ago, have lost their names after being bought. And this has continued in more recent years. In a typical “trade” deal, even when a foreign company is buying into a market, original brands tend to have a limited shelf-life. Initially a brand may well be left alone, but over time, it is almost inevitable that it will disappear.

So are there any other options available? Specialist investment from the right investment partner is a real contender. At Sovereign we work with our investee companies to build upon what they have already achieved. We recognise the value that an established brand and strong client relationships bring to future opportunities. Whether a strategy of organic growth, strategic acquisition or a combination of both, we help deliver the growth that’s right for the business. After all - why would you buy a great brand simply to dismantle it?

Sovereign are keen to invest in Wealth Management companies and we’d love to hear from you. Please get in touch to hear more about our investment approach.