PIMFA
Why is the Wealth Management Industry Building Blockbusters When the Consumer Needs Netflix?
In 1989, Blockbuster video arrived in the UK and transformed Saturday nights for many families. As a child, visiting Blockbuster to pick out a video felt like a big event. Yet, several years later, the business collapsed, leaving behind empty, graffiti-covered buildings. The only surviving neighbouring businesses being the weatherproof off-licences with the teenagers of the era (myself included) hanging around outside asking adults to buy them MD2020, Merrydown cider and Hooch.
The collapse was due to a fundamental shift in consumer behaviour, much like what we’re seeing today as an estimated £5.5 trillion passes down through the generations of UK investors1.
The digital generation changed everything. Consumers, now largely online, sought the convenience of streaming services like Netflix over traditional video rentals. Ironically, Blockbuster had the opportunity to buy Netflix for just $50 million but passed on it. Blockbuster didn’t adapt, and now it’s extinct. This serves as a stark warning to the wealth management industry: adapt or face a similar fate.
This is why the FCA’s recent Consolidator Review is so important. Although much has changed since their last review on the financial advice market eight years ago2, it’s essential that the FCA scrutinises the market in a way that benefits the 92% of UK investors who are locked out of traditional financial advice. This is something that Octopus Money seek to address, and their CEO Ruth Hancock speaks with passion on this topic3.
These investors need low-cost, accessible services—something akin to Netflix for wealth management. Economies of scale could make financial advice affordable, preventing clients from turning to Finfluencers or risky cryptocurrency apps. If the FCA gets it wrong, we risk creating another Blockbuster: advice firms may shut down, leaving nothing but shuttered premises and underserved investors.
Private Equity Firms with “Buy & Build” consolidation strategies fall into two categories. The good actors have dedicated value creation teams that enhance businesses to increase their exit multipliers. The bad actors, however, hoover up balance sheets, acquiring run-off books from retiring IFAs with little intention of improving services or creating long-term value. This approach can lead to fragmented operations, poor customer outcomes, and even a threat to independent advice.
One prominent area where these two differing approaches can be witnessed is in relation to the Central Investment Proposition (CIP) and house Model Portfolios. As firms acquire more businesses, they often end up with multiple models and platforms, leading to friction between operations and distribution. The good actors streamline on-platform operations using automation technologies like Tikker, or by hiring grassroots talent that can move laterally within the business. In contrast, bad actors push customers into house models and force platform migrations solely to reduce costs to the business, all while undermining the very principle of Independent Financial Advice (IFA).
One example of good practice comes from Soderberg Partners, who do not include their own funds in their model portfolios, citing that this is a way to uphold the integrity of their investment advice and to mitigate any potential conflicts of interest that might arise.   Other examples include managers using inhouse ‘building block’ funds within model portfolio CIPs to utilise volume discounts, which are then passed on to clients, promoting good outcomes under Consumer Duty.
While consolidation offers some advantages, such as bringing consumers closer to fund managers and unlocking opportunities like proxy voting and access to preferential share classes, it also introduces significant risks. One key issue is the growing complexity of Know Your Customer (KYC) requirements as consolidators acquire multiple entities. Failing to manage customer data effectively creates money laundering risks and makes it difficult to support vulnerable clients. With many investors in retirement, clear communication is crucial, especially as clients receive communications from unfamiliar brands. Even the most cyber-aware investors could fall prey to phishing attacks when they start receiving emails from multiple firms after consolidations.
The industry also struggles with integration. Mergers and acquisitions (M&A) add layers of complexity to customer and entity reference data, making it harder to deliver seamless services. Poor integration leads to inefficiencies, and firms that don’t prioritize this will struggle to provide the level of service their clients expect. Let’s hope the FCA brings these integration challenges into sharper focus, encouraging firms to improve their operations.
Fortunately, we know there are many good actors too. We’ve had the pleasure of working with several consolidators who are committed to streamlining their operations and delivering a more affordable, holistic service to their clients. The hope now is that the FCA can spot the Rotten Tomatoes – the ones destined to build the next Blockbuster, deriving revenues from opaque fee structures – and don’t stifle the growth of the much-needed Netflixes of the wealth management world.
Tom Whittle – Founder, Tikker
1Kings Court Trust: Passing on the Pounds: the rise of the UK’s inheritance economy
2FCA publishes evaluation of its work on the financial advice market | FCA
3Octopus Money CEO Ruth Handcock warns advice gap to worsen (professionaladviser.com)
