Fight for Wallet Share Fuels Wealth Management Consolidation

The wealth management industry is already highly consolidated, but the desire for expansion and scale will most certainly drive further concentration – with potential consequences in the form of advisor exits for firms that do not adequately oversee growth.

According to a new report by Cerulli Associates, the top five wealth management firms control 57% of broker/dealer (B/D) assets under management (AUM) and 32% of B/D advisors, while the top 25 B/D firms and their various affiliates control 92% of AUM and 79% of advisors.

“Wealth managers are increasingly focused on providing truly comprehensive wealth management, pursuing M&A to bolster capabilities and capture more of the value chain,” noted Cerulli. While increasing client wallet share has been an elusive industry aim for decades, the firm highlighted “a sizeable consolidation opportunity among affluent investors.”

The study revealed that 57% of advised households would prefer to combine their financial assets with a single institution, while just 32% use the same provider for cash management and investment services.

Cerulli also warns about potential hazards when integrating operations. “Vertical integration of technology systems, migration of client accounts, and changes in workplace culture are all potential pain points when an organization restructures,” Bing Waldert, managing director, said.

Firms making acquisitions in new financial services areas must conduct thorough due diligence or risk serving as “cautionary tales,” he stressed.