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Wealth managers on the acquisition hunt need to get their data houses in order

By Ryan Etherington, Senior Product Manager at SIX

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by SIX Group
| 08/11/2021 12:00:00

Anyone else noticed an increasingly strong appetite for acquisition among wealth managers throughout this year?

According to recent research from EY, the number of deals climbed 265 percent to 62 in H1 2021 from 17 a year before. As for UK wealth management firms acquiring overseas companies, this increased to 29 in H1 2021 from 22 a year earlier, with deal value increasing to £2.4 billion from £2.1 billion.

This begs the question, as more and more wealth managers look to boosting their book of business through dealmaking – what are the implications of having to onboard numerous clients dispersed across all parts of the globe?

Much of the focus of the recent wealth management acquisition spending spree will centre around shareholders' attitudes. Only time will tell if undertaking M&A activity will deliver bigger returns for investors, but for now, there are another set of issues surrounding any significant wealth management M&A deal that also need to be considered.

The reality of any major M&A deal means that the acquiring wealth manager will be on-boarding multiple clients all with different data needs. Take the UK, a wealth manager suddenly acquiring a set of clients scattered across the world – all with different tax reporting requirements. An acquisition of this nature could mean that, for example, the UK wealth manager is extending to different asset classes.

But how does an expansion into more asset classes impact a wealth manager in terms of the information that they will need in order to comply with regulations that they previously did not have to adhere to?

It may well be that a firm has to on-board multiple clients focused on global equities. If a wealth manager is bringing in equity clients from jurisdictions outside of the UK, they will need to populate their entity master to ensure they have all the required information underpinning the new equity instruments.

However, it is not just about the instrument in question, it is also about where the end client is physically situated. Some could be onshore; others could be offshore. Regardless of where they are based, you can bet your bottom dollar that a wealth manager acquiring new business is going to have a new set of regulatory hurdles to overcome. In fact, the bigger the deal, the more likely it is to have a wider and more geographically dispersed client base.

Depending on where the new clients are based, investors’ tax liabilities could be affected. It is unlikely that all the new investment products being on-boarded are tax efficient.

In fact, if a large batch of new investment products belong to clients adhering to lighter touch regulatory regimes outside the UK, then the tax suitability of these instruments will immediately come into question. This is why, post any big deal, it is crucial to link the right data with the suitability of the new investment products.

Like all market participants involved in a major acquisition, wealth managers want to ensure that due diligence runs as smoothly as possible. Without full insight into tax suitability and the regulatory profile of new clients being onboarded, firms are left overly exposed to a risk that can negatively impact the long-term success of the deal.

Preparing now to handle the more intricate data issues that inevitably come when bringing in a new set of clients. What is needed to ensure wealth managers are ahead of the curve whenever they buy up a new book of business is a solution specifically designed to increase efficiency and benefit from economies of scale, enabling improved targeting of investments and portfolios.

As and when the next big deal is announced, those best placed to serve their expanded client base will be the ones that address the overall tax suitability and regulatory aspects of all new financial products that come from any acquisition.

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About Six Group
SIX operates the infrastructure for the Swiss financial center, catering to a broad, international client base including wealth managers. For more than 90 years, SIX has provided the financial data and services the industry needs: high-quality data, delivered at the right time, in the right way. From their core reference data on securities, prices, corporate events, tax and regulatory data, to their flagship indices and bespoke benchmarks, SIX offers added-value services that smoothly integrate with their clients workflows.