Kingswood’s strong acceleration in its acquisition strategy underlines its consolidator’s role and its determination to target inorganic growth in globally highly fragmented financial advice markets. The London-headquartered firm started its journey in 2010 as an investment management business and today provides clients with an “integrated approach” to their financial affairs, coupled with an international perspective, having acquired wealth planning firms both in the domestic market and the US in recent years.
“We have got the ambition to build wealth participations in jurisdictions around the world, and that is really different to any of our competitors or consolidators in the UK,” states David Lawrence, CEO at Kingswood. He joined the firm in December last year from Schroders Personal Wealth where he was chief commercial officer, having previously held senior roles at Lloyds Private Banking.
With several offices in the UK, and presence in the US and South Africa, Kingswood as a group boasts £7.9bn ($10.5bn) in client assets under advice and management. Of these, around £6.3bn are sourced from 16,000 UK resident mass affluent clients, who typically have investable assets ranging from £250,000 to £5m.
Recent acquisitions have boosted the firm’s UK AuM to £3bn, with the firm aspiring to more than double this figure over the next three years. Its core offering is third-party fund selection and portfolio construction for discretionary management services.
Consolidation
In the UK, Kingswood’s potential targets are financial adviser business owners at, or close to, retirement age and looking to exit. There are more than 2750 firms with two to 50 advisers, who typically “feel burdened” by regulation, as speed and scale of regulatory change is proving highly disruptive.
“The Kingswood model is designed to provide a centralised, efficient support infrastructure to manage routine, but time-consuming tasks required across compliance, finance, human resources, risk and technology,” says Mr Lawrence. This allows the acquired firms, which are eventually integrated into Kingswood, to outsource such functions and focus on their core activity, namely advising clients.
Principals, advisers and key support staff typically stay with the acquired business, because “they are the fabric that keeps the client relationship and the value intact”, says Mr Lawrence.
“The outcome is cost synergies and greater scale, which helps us to grow further,” he adds, warning that a cultural fit is a prerequisite of any deals.
The UK business has just announced the purchase of Iboss group, including a managed portfolio services provider and an independent financial adviser (IFA), following the acquisition of privately owned wealth management business Money Matters (North East) earlier in November.
These follow the purchase of Admiral Wealth Management this summer, and the integration of a handful of other wealth management firms in the UK over the past three years, including Sterling Trust in 2020 with more than £1bn in AuM.
“Buying businesses is a quicker route to growth and we continue to have a strong pipeline of high-quality UK opportunities under negotiation, four of which are in the exclusive due diligence stage,” reveals Mr Lawrence. During the summer, the firm stated it was also having exclusive discussions with three businesses outside the UK.
In the US, the firm has a majority stake in a wealth management and investment banking business, which was rebranded Kingswood US last year. The company is expected to drive the US growth strategy through mainly recruiting IFAs and acquiring small to mid-size RIA (registered investment adviser) firms and broker/dealers.
While today the two businesses pursue success in both the UK and US markets separately, over time Mr Lawrence expects there will be synergies between the two, as investment solutions made in the UK may be distributed in the US.
ESG credentials
In the UK, the firm offers a core range of “risk graded model portfolio funds”, as well as a parallel range of income, environmental, social and governance (ESG) and passive funds, in addition to bespoke portfolios.
Clients have a “key desire” to invest in a full ESG portfolio and not just ones with an ESG tilt, explains Mr Lawrence. Also, they are increasingly challenging businesses’ credentials around the three eponymous pillars of ESG.
“Firms that try and sell ESG products, but are not progressive in ESG in their own right, may start to struggle. At Kingswood, we need to have a clear strategy, with products reflecting the firm’s stance and we haven’t got quite there yet,” he acknowledges.
The firm has 80 advisers today, many of whom inherited though acquisitions. “One of my goals is to build an advisory team that are reflective of our emerging client base,” he says. “The typical middle aged, male adviser in the UK is not reflective of our society at large and while that might not hurt us today, it will hurt us in the future.”
To make the firm’s advisory force more inclusive, he plans to recruit individuals from a wide range of sources, from those seeking career changes or from the armed forces to hiring experienced advisers directly from competitors. “The ability to build deeper, enduring, trusted relationships is at the core of what we would look in an adviser,” says Mr Lawrence.
The firm then provides training programmes, as well as on the job training and an induction to equip them with technical skills. “You don’t need to be an economist or know about markets to be a really successful adviser. It is more soft, personal skills that would drive you down that direction,” he believes.
While “top of agenda” is providing solutions for all types of clients, and not for specific client segments, the percentage of female clients, both at the firm and industry level, is still low. “We are not, as an industry, addressing advice needs for females as much as we are for males,” he admits.
“Often wealth management is about addressing the family rather than the individuals, but I would like to think we can build propositions and be accessible to both genders in equal parts, and there is levelling up to do. Advisers should connect with women more.”
Life experience
While the firm has trained some graduates “to become successful advisers”, “grey haired” advisers are preferred, as they are more likely to have the “gravitas” to connect with clients and talk about sensitive topics such as passing wealth to the next generation, which a 21-year-old may not have.
“You do need to have a sense of maturity to make it work. You are speaking to people about the most important things in their lives, how they protect their family, how they make sure they have a great income in retirement, how they pass wealth onto their loved ones. It is easier to do that if you have got some life experience, which is why returners, career changes or existing advisers is more of a sweet spot for us.”
One of the key issues is around how to engage younger generations, who are typically more self-directed investors and less likely to seek advice. Wealth management businesses can and must play a key role in helping individuals understand the value of advice, and make correct choices at the right age. In this regard, the firm is developing propositions that it considers to be “better value and more accessible, using technology” and is hoping to address the advice gap.
While the core of Kingswood’s business model is a “human centred client relationship”, Kingswood is “very keen” to embrace technology and digitalisation.
As was the case for most firms, at the start of the pandemic it immediately moved clients onto video conferencing and allowed them to sign documents electronically, but for the future it has “ambitious plans” to use client data, insights and technology to create a “frictionless client journey”, from onboarding to investment advice, with technology supporting the human relationship.
Realistic story
While not directly competing with private banks, competition for Kingswood comes “from all directions”, ranging from wealth management firms - with St James’s Place Wealth Management being the largest UK competitor - to investment managers, such as Brewin Dolphin, Rathbone and Charles Stanley. Also, as a consolidator it competes against the likes of Fairstone and AFH Wealth Management, which are active in the space.
Looking forward, the firm as a group aims to reach £20m of operating profit by the end of next year, having reported £3.1m in the first half of this year.
“The target may be a long way off but if we look at our acquisition pipeline, and the acquisitions we will conclude over the next 12-18 months, coupled with some expansion in the US and other international jurisdictions, and add on a layer of organic growth on top of that, it starts to become a very incredible and realistic story,” he concludes.
