The Resilience of Wealth Management: A Bright Spot in M&A Activity

In a world where mergers and acquisitions (M&A) are experiencing a notable decline, the wealth management sector stands out as a beacon of resilience. According to Deloitte’s 2025 investment management outlook, authored by Neil Brown, the national investment and wealth management leader, the wealth management industry is not only bucking the global trend but is also poised for further growth in M&A activity by 2025. This article delves into the key factors driving this trend and highlights the strategic maneuvers wealth management firms are employing to thrive in a challenging landscape.

A Decline in Global M&A Activity

The global M&A landscape has seen a downturn, with a reported 10% decline in transactions from 639 deals in 2022 to 576 in 2023. This downward trajectory continued into 2024, with a staggering 27% drop in the first half of the year, where only 234 deals were recorded compared to 321 in the same period the previous year. This decline reflects broader economic uncertainties and market volatility that have made firms more cautious about pursuing acquisitions.

Wealth Management: An Outlier

Despite the overall decline in M&A activity, the wealth management sector is experiencing a robust period of inorganic growth. Deloitte’s report identifies two primary factors driving this trend: succession planning and product diversification. These elements are not only critical for the survival of firms but also serve as catalysts for strategic acquisitions.

Product Diversification: A Strategic Imperative

Wealth managers and asset managers are increasingly recognizing M&A as a strategic avenue for achieving product diversification and expansion. The investment management industry, despite witnessing growth in assets under management (AUM) in 2023, has struggled with revenue growth and profit margin expansion. This paradox has prompted a shift in product strategy, with firms prioritizing a diverse product mix to enhance revenue streams.

A prime example of this trend can be seen in Australia, where Magellan acquired a 29.5% minority stake in Vinva Holdings for $138.5 million. Vinva, which manages $22 billion in AUM, specializes in active systematic equity strategies. This acquisition not only allows Magellan to diversify its product offerings but also enables it to leverage Vinva’s distribution capabilities through an exclusive agreement, thereby enhancing its competitive edge.

Similarly, BlackRock’s acquisition of Global Infrastructure Partners (GIP) underscores the importance of diversification. GIP specializes in complex assets across various sectors, including energy and digital infrastructure. This strategic move positions BlackRock to tap into new revenue streams and mitigate risks associated with traditional investment avenues.

Succession Planning: A Critical Concern

Succession planning has historically been a weak point for financial advisory practices, particularly in Australia. However, the importance of having a robust succession plan cannot be overstated. Trigger events such as death, disability, retirement, and resignation often prompt firms to consider their succession strategies. Unfortunately, many firms find themselves unprepared, leading to hasty decisions that can jeopardize their future.

The urgency for succession planning is further amplified by a looming talent shortage in the asset management sector. A recent KPMG report highlighted concerns about the lack of suitable candidates to replace retiring senior executives. With 89% of asset management CEOs planning to expand their workforce over the next three years, the risk of a talent vacuum poses a significant challenge.

Mischa Bennett, managing director at Capital Executive Search, emphasizes the need for consolidation in the coming decade. For aging fund managers, the question of how to monetize their businesses into retirement is paramount. Without a solid succession plan, many may turn to M&A as a viable option to secure their firms’ futures.

The Future of M&A in Wealth Management

Looking ahead, the outlook for M&A activity in the wealth management sector appears promising. A previous Deloitte report indicated that inorganic growth strategies are expected to double in the financial services sector compared to the previous year. M&A leaders are described as "cashed up, confident, and looking to double their deal volumes," despite facing challenges such as squeezed margins and rising funding costs.

As wealth management firms navigate the complexities of succession planning and product diversification, their ability to adapt and innovate will be crucial. The ongoing trend of strategic partnerships and acquisitions will likely continue to shape the landscape, providing firms with the tools they need to thrive in an increasingly competitive environment.

Conclusion

In conclusion, while the global M&A landscape may be experiencing a downturn, the wealth management sector is defying the odds. Driven by the dual imperatives of product diversification and succession planning, firms are leveraging M&A as a strategic tool for growth. As we look toward 2025, the resilience of the wealth management industry serves as a testament to its adaptability and foresight in an ever-evolving market. With the right strategies in place, wealth management firms are not just surviving; they are poised to flourish in the face of adversity.