State of the market: Private equity in financial advice

Stephen Phipps our consultant managing the role
Posting date: 14 March 2023

Private equity investment in financial advice firms is on the rise. There’s a strong appetite for mergers and acquisitions, and PE organisations are taking advantage of market fragmentation, brought about in part by cost pressures on smaller advice firms and a retirement generation of financial advisers. I know of more than 30 PE-backed consolidations, and I’ve heard rumours of a few more.


That means PE firms need accurate market intelligence that provides them with more knowledge of the advice sector landscape - support that will enable you to navigate its complexities. 


More than that, I’m speaking to a lot of PE firms that need search experts who know the financial advice market. They need access to the right contacts who can ensure they find the right talent at the right time to fuel their growth and develop robust exit strategies. PE recruiters are experts in their industry, but may not know the financial advice market - or who’s who.

Financial advice market intelligence for PE firms

The financial services sector has been increasingly attracting the attention of PE firms over the last few years. Why? In part due to robust growth, strong profit margins and consistent cash flow, but also because we’re seeing an appetite from smaller advisory businesses to become part of larger organisations. 


There’s also the fact that many leaders of financial advice firms are reaching the point of retirement and want to leave their business in good hands. As private equity firms typically have a specific investment horizon and exit strategy, they can provide financial advice firms with a clear path to exit and a potential exit multiple that can be higher than the firm may have achieved on its own.


Private equity firms have been following these market trends and opportunities by pouring millions (possibly billions) into the UK financial advice sector over the last few years. Many advice firms are really solid, there’s a great opportunity for consolidation and investors looking for positive growth recognise advisory businesses as a compelling proposition.


Another point of note is that private equity firms probably see synergies between financial advice firms and other companies in their portfolio, such as insurance or investment firms. These synergies can be leveraged to create new revenue streams.

How many PE firms have acquired financial advice businesses

Analysis by Dyer Baade & Co. counts 31 active private-equity-backed consolidations as of January 2022 - a figure that had doubled in 2021. Of these, 16 firms received investment during that year, and there have been a few more since that time. More recently, a figure of note is the 11% rise in mergers and acquisitions targeting financial advice firms, up to a high of 440 in 2022.


It seems many of the private equity firms in the financial advice sphere are looking to follow a buy-and-build strategy, making further acquisitions on the way to building a company with a more complete financial services offering.

What PE firms are saying

Private equity firms are enthusiastic about investing in the financial advice sector. From the leaders I talk to at PE firms, I can see that they believe the industry is ripe. Just some of the things they tell me is that it’s a combination of factors that are influencing this. These include healthy margins, consistent cash flow, solid growth and low capital needs in comparison to other types of financial services firms.


Daniel Baade, CEO of Dyer Baade & Co., says, “Typically, 70 to 80 per cent of an IFA’s revenue is recurring. This makes the revenue and cash flow very predictable, which is very valuable for a private equity firm. The industry is also incredibly fragmented... Most of these firms are small, they operate sub-scale and it makes sense to consolidate them. There’s also a market where you have a lot of willing sellers, so it’s not hard to find targets, which also makes it quite attractive.”

Challenges & opportunities for PE firms in the advice market

As a private equity firm, investing in the financial advice market offers both challenges and opportunities.


- The main challenge is operational integration. There’s often a strong relationship between an advisor and their client that’s been built on trust. This must be taken into account: if you don’t, you run the risk of the advisor leaving because they don’t like the way the business is being run, or the client leaving because they aren’t getting such high quality service.

- The market is hot. That means it will become more difficult for PE firms to achieve their forecasted profit.


- Look to the regions. If you invest in a financial advice firm that knows and understands the regional market, they’re more likely to be able to grow within that region with the cash injection.

- Give the advice firms that require reinvigoration the money they need, but also provide them with vision and ambition. There’s a high potential for that business to grow, but also be re-rated, and that means you can exit for a higher multiple of earnings because you’ve significantly improved business performance.

Why using an FS search expert will bring in the talent that drives your advisory business forward

Financial services recruiters are specialists, with in-depth knowledge and experience in the market that allows us to understand the unique requirements and culture of a financial advice firm. We also have a network of contacts, meaning we’re best-placed to find the right talent for a specific role. 


A deep understanding of market rates also means we can negotiate better salaries for candidates, leading to cost savings for PE firms - and getting the right people in can open new opportunities, making a positive impact on your bottom line while supporting your exit strategy.


I’ve personally placed many C-suite roles in financial advice firms, from COOs and Chief Risk Officers to Managing Directors and Heads of IT.

If you’d like to chat through your recruitment needs for senior positions in financial advice, contact me directly and let’s set aside time for a call.

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