Hello, hello, happy Wednesday, hope your Augusts are proceeding well and that The Corn Wall is all you wished it to be. I would very much doubt many of you were camping, which means you avoided getting a tents, nervous headache last week. I suspect that when travel properly opens up then the UK will absolutely empty; you’ll find me doing my very best to cause a regional wine shortage in the Loire. Suppose it’ll be good news for burglars.

Anyway, it’s nice today and you’re probably on holiday, and if you’re not then you’re dealing with all the crap people left you as well as your own work and resenting the living daylights out of it, them, me and everyone. So I’ll keep this relatively brief.

Two things to cover this week but they’re cleverly linked, aye? First up, I’m very disappointed in Sanlam, which not only failed to disclose that it’s putting its wealth business up for sale too late for last week’s Update, but also did so a scant 24 hours after I wrote this piece, and made me look even stupider than I normally do, and that’s no small achievement.

So another wealth manager joins the list of corporate activity, and some South Africans make some money (which perhaps they could spend on teaching their national rugby team about the rules for tackling in the air) – who cares? Probably not you, and that’s fine, but by all accounts once the summer is over there is a tsunami of corporate activity ready to crash onto the beach of…of…don’t know, braying posh boy red chinos or oversized wristwatches or monogrammed shirt cuffs or whatever.

Again, who cares, right, but the thing is that this is – I reckon – a cyclical thing and it’s echoed in the advisory market too. This is about the sector deciding that the bigger the firm, the more able to withstand the coastal erosion of regulatory encroachment (I’ll have to stop these metaphors; they’re exhausting) they are. Such regulatory wavepower is nothing new, of course, but if you read the regulatory tealeaves particularly in light of the 2021/22 business plan, I think it becomes clear.

Adviser firms in particular have long moaned that the regulator doesn’t like small firms; you’re nimble, hard to find and there are a lot of you. There just aren’t enough hours in the day to keep you under control. Big firms, on the other hand, are easy peasy to manage and have the financial resources – or should have – to sort things out when devilish wickedness happens. But it’s never really done much about it; regulatory fees scale with size and most other issues are either administrative or more abstract. Small firms are incredibly resilient (or have been) and so we all go about our day.

There are two proposed changes, though, which I think might accelerate the pace of consolidation in both the wealth and advisory sectors. The first is a proposed increase in capital adequacy requirements – depending on how pinchy this is, many firms might well feel that seeking shelter in a larger organisation is very much something they are up for. Cap ad is important, but most small to medium businesses in any sector would struggle to keep a large amount of cash ringfenced. Increases always hit small firms hardest; that one is being discussed now feels like a statement of intent.

The second is the consultation on the Consumer Duty. This is a sort-of step up from PROD, TCF and the suitability requirements in MiFID II, and is freaking many people out as they start to get their heads round it. The FCA can say it’s not intended as a fiduciary duty, but if you open your hymnal to section 4.37 you’ll see something that looks awfully like it. At the very least, the Duty or whatever comes from CP21/13 represents a step-up in what firms are expected to do. All this takes time and resource from people who don’t spend all day earning fees – once again, this hits smaller firms harder.

In Updates recently I’ve talked about the advisory and planning sector sort of stepping up and claiming what belongs to it – you – in terms of power and being central in the entire retail financial services industry, and quite right too. I think this is a regulatory acknowledgement of that trend.

The FCA, if we’re honest, doesn’t want rid of small firms, or big firms; that’s not what it’s there for. It does want everyone to understand that with great power comes great responsibility, and that power and the ability to use it for good or ill on a per client basis is exactly the same in a regional 5-person firm as it is in SJP, Sanlam, Raymond James, IWP, True Potential or wherever. This is our friends in Stratford, in their own inimitable way, holding big and small firms alike to the same standard.

So yes, plenty of consolidation to come and the accompanying corporate activity. And, at the risk of looking stupid again, I do wonder if more smaller firms might look at how they can derisk their businesses and consider whether trve independence is really the hill they want to die on.

A CONSOLIDATION OF LINKS

  • No HomeGames this week, but perhaps you might like to revisit this session with Andy Bell from our Platform CEO series? Was a good one.
  • Interesting stat attack from Origo – lots of small pot consolidation (that word again) happening, but timescales are going out a little.
  • I thought this piece from AXA IM and Broadridge on thematic investing was pretty interesting. Worth a read.
  • Can I shill our paper with Seccl on adviser-owned platforms again? Yes, yes I can.
  • And after the Joey Jordison news last week, it’s Dusty Hill’s turn now. Much tunes, very boogie, so beard, wow. Here’s Sharp Dressed Man which I and every other teenage school band murdered in the 80s. Still a great, great song though and maybe the most 80s video ever; no excuse for that headless bass though. RIP Dusty.

See you next week

Mark