Deals are few and far between in the UAE advice market, however there have been some that have caught the eye.
The most recent merger between Arlo Wealth and Harrison Rowe Private Wealth in June 2020 was one that brought great intrigue, especially with the combined business having $1bn (£790m, €880m) in assets under management.
But now, like many places around the world, the covid-19 pandemic has changed the landscape for firms.
Some may not be as financially stable as they once were, which could lead to an increase in M&A deals in the financial advice industry.
So, what does the sector think about this?
Gaenor Jones, regional director of the Middle East at the Chartered Insurance Institute (CII), said: “It is unfortunately inevitable that some smaller companies will be swallowed up by those larger and longer established organisations who have been able to withstand the impact of the pandemic by re-structuring and consolidating their resources.
“However, this will certainly lead to tighter regulations being implemented across the sector and this is a positive step for the financial planning and insurance professions, and the consumers that they serve.”
Hannah Greenwood, managing director of Finsbury Associates, said: “While M&A for investment companies and insurance providers is a fairly common practice in the region, the lack of legal and regulatory framework to support M&A in the advisory space still provides a considerable challenge.
“The lack of enforceable penalty for non-compete and poaching of staff can leave the purchaser incredibly exposed and subsequently lead to significant discounting to compensate for the associated risks of purchase.”
Types of deals
If there is M&A activity in the UAE advice industry, what types of deal will be at the forefront?
Stuart Ritchie, director of wealth advice at AES, said that firms expects there to be “more client book acquisitions for various factors”.
“Firstly, we envision a lot of acquisitions will be as a result of the downturn in markets, where companies can no longer continue to operate in expired models,” he added. “There are only a few reasons for a company to take over a failing operation and convert it, when they could simply absorb clients into their already successful model.
“Taking over a full business results in having to remedy legacy issues, such as employees trained in the ‘old way of doing things’, and reputational obstacles.
“Another important downside of taking on full businesses is losing the flexibility of learning from one’s mistakes and starting from scratch.
“It is much harder to fight fires than prevent them.”
But CII’s Jones had another theory.
“As a result of covid-19 and companies taking a hit on revenue, I believe there will be more full business deals rather than individuals switching companies with their client books.
“They will want to ensure better security and stability within well run professional organisations. During these times of uncertainty, organisations will want to strengthen their operations with conviction to withstand future threats.”
Nigel Green, chief executive and founder of Devere Group, said that he thinks deals are “inevitable as smaller companies are likely to find the already highly-competitive international financial services sector even more challenging”.
He also believes they will come in a variety of structures.
The UK has started to see the formation of serial acquirers, therefore the make-up of sector is mostly bigger firms.
So, will the UAE financial advice industry echo what is happening in the UK?
“I think it can be expected that larger firms will thrive in this new era,” Green added. “Whilst competition, small or big, is good; size matters in our industry.
“This is because, in order to service and support clients appropriately, substantial investment is required in terms of products and services, training, administration, IT, governance and compliance, amongst other factors.”
Ritchie said the formation of bigger players in the UAE “is very possible, as bad companies fall out of the market, and are absorbed by good, leaner, more efficient, better companies”.
“However, this marketplace is one which values specialisation and personalisation. A few big players may struggle to provide the bespoke service that consumers crave these days.”
Future of the sector
It’s not just advice firms that are completing M&A deals in the country.
The UAE recently announced the much-rumoured merger between the Insurance Authority (IA) and Securities and Commodities Authority (SCA).
With deals happening across the board, from global advisory firms to financial regulators, what does this all mean for the industry?
AES’ Ritchie said: “The future of the UAE advice sector is quite clear. As consumers find themselves with more and more information, and regulation tightens, advisory firms will have to adapt or be forced to shut down.
“We have seen the evolution of advice in other parts of the world, such as the wave of professionals moving from the antiquated commission model, to the fee-based model we see more frequently now.
“Consumers are starting to realise that transactional work can be done much cheaper with the rise of development of technology, such as robo-advisers, and likewise the results of partnering with financial planning professionals providing an ongoing service are becoming more and more evident.”