Strategic M&A in wealth management: trends and best practices

February 2025  |  TALKINGPOINT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

February 2025 Issue

FW discusses strategic M&A in wealth management with Simon Ward, Anthony Turner, Charlie Court, Emily Jamieson and Jessica Reed at Farrer & Co.

FW: Could you provide an overview of key developments taking place across the wealth management industry? How are these impacting M&A activity levels?

Ward: The wealth management industry is undergoing significant transformation, driven by more demanding client expectations, technological advancements and regulatory changes. A notable trend is the increasing demand for personalised, tech-enabled services, prompting firms to invest in digital platforms and analytics. Additionally, environmental, social and governance (ESG) considerations are reshaping investment strategies, requiring firms to integrate sustainable practices into their offerings. These shifts are accelerating M&A activity as wealth management firms seek scale, consolidation and market share to stay competitive. Smaller firms are merging with larger players to access technology, regulatory support, compliance expertise and a platform for their clients that would otherwise require significant cost and investment, while private capital investors are actively pursuing opportunities in the sector due to its recurring revenue structure, resilience and growth potential. Overall, the changing landscape is creating a dynamic M&A environment, reshaping the industry to meet the demands of modern wealth management.

FW: What characteristics make a wealth management target an attractive prospect? What aspects are acquirers focusing on?

Jamieson: Regardless of strategic motivation – which could be pure assets under management aggregation, UK market entrance or regional expansion – acquirers are invariably looking for a robust, high-quality client base. A firm’s track record of retention and a clean regulatory record both signal reliable, long-term fee generation and growth potential, and regulatory compliance and risk management frameworks are inevitably subject to early due diligence scrutiny. Operational efficiency and technological integration will also play a role: firms that leverage technology for portfolio management, client relationship management and compliance are better positioned to scale, to integrate into acquirers’ systems and adapt to regulatory changes. Finally, a strong, motivated advisory team with potential cultural alignment will significantly enhance a firm’s attractiveness, as these elements are key to long-term sustainability of the acquired business, particularly if the sale is a retirement move for its founders.

FW: What general advice would you offer to companies on structuring and financing wealth management deals in today’s market? What key areas should be addressed?

Jamieson: Wealth management is client-centric and adviser relationship led. Ensuring a smooth transition for clients is crucial and this includes retaining key personnel within the target business. To achieve that, an earn-out structure is often appropriate. An earn-out will make part of the purchase price contingent on performance of the business over a defined period post-completion. This aligns the incentives of all parties and can mitigate risk of key employee departures and associated loss of clients. Another key factor in structuring any wealth management deal will be the requirement for regulatory approval, necessitating a gap between signing and completion while such approval is obtained. This requires careful negotiation of risk allocation during the interim period. Also key for a buyer will be ensuring suitable controls and limitations on operation of the business pre-completion, without overstepping regulatory limitations on what control can be exercised.

FW: How important is it for acquirers to undertake a thorough due diligence process to manage potential risks associated with wealth management deals? What specific areas of risk and exposure are typically assessed?

Court: Wealth management clients are highly mobile, so proper diligence as to the past operation of a target is crucial to identify regulatory and reputational risks to the target. On the regulatory side, diligence typically focuses on aspects of ‘non-standard’ advice, including defined benefit pension advice, and proper compliance practices, with a particular recent focus on consumer duty implementation. For warranties and indemnities insurance-backed deals, coverage is increasingly available for a wide range of compliance aspects if properly diligenced, including regulatory capital requirements, mis-selling, client money handling and even historic pensions advice. Indemnities remain very common where specific issues are identified. Employment aspects are also a key focus area, with incentivisation of remaining key employees fundamental to the success of the business post-completion. Equally important is suitable diligence on back-office mechanics, to enable proper analysis of required integration steps and potential synergies arising, which is particularly important for trade buyers.

FW: What opportunities is technology, such as artificial intelligence, creating for both buyers and sellers in the wealth management industry?

Court: Shared technology platforms and common software systems can make an acquisition more attractive, or at least reduce the intensity of due diligence where the buyer is confident that it already knows the technology that the target is using day to day. Generative artificial intelligence (GenAI) also provides tools for streamlining diligence processes and potentially for widening their ambit, without materially adding time or cost – for example where GenAI is used to test a seller’s or a target’s ESG credentials or to review standard documents at speed. Over time, wealth managers involved in M&A transactions will be able to train GenAI systems with deal-related data, in order to create tools to assist decision makers with transaction-related queries and to ‘advise’ on everything from the compliance status of the target business through to, potentially, deal pricing. However, the use of GenAI tools is not without risks and will soon be subject to legislation. This includes the European Union’s AI Act as well as the existing non-statutory principles applied by sector regulators, including the Financial Conduct Authority (FCA) in the UK, which require, for example, human oversight and accountability for AI-powered decisions. The opportunities are significant, but so are the risks if technology is used unlawfully or irresponsibly.

FW: What legal and regulatory issues do wealth and asset managers need to navigate during the M&A process, to ensure compliance and mitigate risks?

Reed: Wealth and asset managers navigating M&A transactions must address a range of legal and regulatory issues to ensure compliance, mitigate risks and ultimately enhance value. Due diligence is critical, requiring an in-depth examination of the target’s regulatory compliance, including adherence to conduct of business regulations, regulatory capital requirements, anti-money laundering standards and data protection laws. A robust review of past business, client terms, any fund documentation and regulatory licensing requirements is essential to identify potential liabilities or regulatory breaches. The transaction must also consider competition law to avoid antitrust concerns and ensure necessary change-in-control approvals are obtained from regulators such as the FCA. Managers must navigate employment law, particularly the FCA’s remuneration requirements and Transfer of Undertakings Protection of Employment Regulations for employee transfers, and ensure integration plans respect cultural and operational differences. Additionally, post-transaction risk arises from integrating compliance systems and aligning governance frameworks. By addressing these issues proactively, wealth and asset managers can safeguard their operations and achieve a successful, compliant M&A process.

FW: How do you anticipate M&A activity levels will play out in this sector over the months ahead? Are there any particular trends you expect to see?

Turner: M&A activity in the wealth management sector is expected to remain robust in the months ahead, driven by several key trends. The continued demand for scale, operational efficiency and new markets is likely to spur further activity, as firms seek to optimise costs and enhance service offerings. Vertical integration will also be an important driver of M&A as firms look to provide larger platforms, and a wider range of services, to clients at all levels of wealth. Private capital investment, from within the UK and overseas, remains a significant driver, with investors attracted to the sector’s resilience and recurring revenue models. Meanwhile, the push for technological advancement is prompting acquisitions of, and investments in, FinTech companies, as wealth managers prioritise tech-enabled client services, and this will drive activity in this sector. Political and economic uncertainties will remain of interest, and may impact dealmaking in the short term, but the underlying demographics will ensure that, overall, M&A activity will remain an important feature of the wealth management landscape.

Simon Ward is a corporate lawyer. His focus is on private capital and providing advice to clients in private company M&A, private equity and venture capital. As part of his private company M&A practice he has a particular focus on the financial services sector, where he has advised on both the sell-side and buy-side in wealth management, FinTech and other regulated sectors. He can be contacted on +44 (0)20 3375 7242 or by email: simon.ward@farrer.co.uk.

Anthony Turner advises on the full range of corporate transactions, from M&A, complex structuring and equity investments to fundraisings and governance advice. He advises a number of clients on international transactions including inbound investments into the UK. He has a great deal of experience advising clients on transactions in all aspects of the financial services sector, and he is recognised as a financial services specialist in The Legal 500. He can be contacted on +44 (0)20 3375 7460 or by email: anthony.turner@farrer.co.uk.

Charlie Court has a particular focus in the financial services sector. He is experienced in asset management, IFA sales and acquisitions and has acted on the sale of one of the largest European technology service providers. He is an adviser to private banks and understands their specific legal and commercial considerations. He also has considerable experience in venture capital and private equity structures. He can be contacted on +44 (0)20 3375 7487 or by email: charlie.court@farrer.co.uk.

Emily Jamieson has particular expertise and experience in the financial services sector. She works closely with Farrer & Co’s financial services team on M&A and investments in the regulated sector, as well as other corporate transactions involving regulated businesses. Recent experience includes advising a European-headquartered bank on the proposed acquisition of a specialist FinTech group. She can be contacted on +44 (0)20 3375 7127 or by email: emily.jamieson@farrer.co.uk.

Jessica Reed is an experienced financial services and funds lawyer. She advises a wide range of clients including asset managers, wealth managers, private banks, international financial institutions and charitable institutions on the full spectrum of contractual, transactional and regulatory issues. She has undertaken several secondments to a well-known UK wealth manager, giving her an invaluable insight into the unique issues faced by such institutions. She can be contacted on +44 (0)20 3375 7518 or by email: jessica.reed@farrer.co.uk.

© Financier Worldwide

THE PANELLISTS

Simon Ward

Anthony Turner

Charlie Court

Emily Jamieson

Jessica Reed

Farrer & Co