Complex advice portfolios deterring acquirers

Holding portfolios that are too complex can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.

Speaking on a webinar, Mitch Ramsbotham, head of growth and strategy at Coastal Advice Group, discussed factors that could limit a firm’s valuation in the event of M&A activity.

In the past five years, Coastal has had 16 M&A deals, it said, and recently entered into a strategic partnership with US firm Merchant Wealth. This will allow Coastal to unlock growth and innovation opportunities, strengthen its ability to attract and retain talent, invest in new technologies, and foster a supportive workplace culture.

One factor noted centred on firms which are running client portfolios that are too complex or overly bespoke.

He said: “We’re seeing complex businesses be penalised. Very complex portfolios that are two A4 pages of individually bespoke portfolios are going to be perceived as very, very difficult from an alignment point of view for an acquirer to absorb and continue to run.

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“There is a lot of individual education and individual personalisation to put into portfolios, and in the market place you are being penalised for that because the ability of a new firm to run that business efficiently and to continue to perpetuate the service offering that has been delivered to that client is going to be very difficult for an acquirer.”

This is especially the case if an adviser is doing the portfolio allocation themselves but may be less problematic if it is utilised via a model portfolio or separately managed account structure, he clarified.

His comments are interesting given the push for financial advisers to both use more private markets and alternative funds in their portfolios and, simultaneously, offer greater bespoke or personalised portfolios. 

A report by Hamilton Lane found Australian advised clients are demonstrating the highest enthusiasm for private market funds out of all regions surveyed at 61 per cent compared to 33 per cent in Europe. The majority (52 per cent) of Australian advisers reported their clients’ knowledge of the asset class as intermediate.

Meanwhile, a report by MSCI found that while personalisation used to be a request from only the richest clients, it is becoming more sought-after for all branches of clients who desire alignment with their values.

MSCI’s Emerging Trends in Wealth Management report found wealth managers are more readily offering bespoke portfolios to a larger client base, thanks to technology advancements which have transformed personalisation from a luxury into an industry standard.

Some 60 per cent of wealth managers said they expect the majority of their high-net-worth client portfolios will require some degree of personalisation now or in the near future, with tax optimisation and investment preferences identified as the top reasons.

“While some firms saw it as a differentiator, it was not a widespread industry focus due to the high costs and labour-intensive nature of tailored services, but technological advancements have begun to dramatically reduce costs and allow for efficient and scaleable solutions.

“Clients are increasingly conscious of how their investments affect society and the environment. They are no longer satisfied to focus only on financial returns; they want to ensure their portfolios align with their personal values.”