Wealth firms’ war for wallet share fuels consolidation, says Cerulli

Report reveals how top firms are taking more assets through M&A as they look to assimilate technology and service offerings.

The trend of consolidation continues to dominate the financial services industry, with wealth managers seeking to expand scale and capture a greater share of the advice value chain.

That’s according to a new white paper by Cerulli Associates, which examines how the ongoing wave of merger and acquisition activity could have significant effects on the competitive landscape in the coming years.

The report highlights that consolidation has been underway for over a decade, driven by the need for greater profitability and competitiveness.

The competitive landscape is gradually turning lopsided, Cerulli’s numbers suggest, with the top five wealth management firms now controlling 57 percent of broker-dealer assets under management and 32 percent of broker-dealer advisors. The top 25 firms, including their affiliates, account for 92 percent of assets and 79 percent of advisors.

Wealth managers are increasingly aiming to provide comprehensive financial services through acquisitions, seeking to expand their share of client assets. And while Cerulli’s research reveals 57 percent of advised households would prefer to consolidate their financial assets with a single institution, only 32 percent use the same provider for cash management and investment services.

The desire to expand wallet share is fueling firms’ need to capture more of the value chain, prompting many to expand their in-house service offerings. Services like tax planning, estate planning, and risk management are increasingly being integrated within wealth management firms, with nearly two-thirds of all financial asset growth since 2011 flowing into the high-net-worth and ultra-high-net-worth segments.

Firms also see acquisitions as a scaling strategy aimed at reducing operational costs, improving technological infrastructure, and streamlining regulatory compliance. Beyond that, snapping up another wealth player also offer firms a way to enter new market segments and diversify their service offerings.

While mergers and acquisitions can be transformative, Bing Waldert, managing director at Cerulli, emphasizes that integration also poses challenges.

“In the wake of a merger or acquisition, firms rarely emerge as well-oiled machines providing best-in-class capabilities and service offerings,” he said in a statement. “Vertical integration of technology systems, migration of client accounts, and changes in workplace culture are all potential pain points when an organization restructures.”

“As wealth management firms enter new segments through acquisition, they must have a plan to transition clients to service models that meet their needs,” he said.