It’s believed that c. 34 wealth managers are now backed by private equity in the U.K. Consolidation has been a theme for a number of years in wealth management and it’s not likely to go away. Many wealth managers have historically been privately owned SMEs, or partnerships, and the emergence of PE investment means that a different set of skills are required for senior executives in the wealth management sector, who are tasked with developing and executing the business strategy with their PE partners.

The first thing that springs to mind is an increased level of reporting standards. Private equity backing invariably raises the bar in terms of reporting standards. Executives must now contend with rigorous demands for transparency and accountability. Detailed financial reports, performance metrics, and strategic plans become the norm, necessitating a keen eye for detail and proficiency in articulating the firm's trajectory to stakeholders. The ability to adapt the business to these demands without disrupting day to day operations is key. Equally, appointing executives who themselves aren’t distracted by these new requirements is key.

With improved reporting comes transparency and sometimes scrutiny. Executives can sometimes find themselves engaging with a more sophisticated and challenging boardroom environment, where strategic decisions are scrutinised through a lens of value creation and exit strategies. Effective communication, strategic foresight, and the ability to navigate complex discussions become indispensable traits for success in this realm. Many executives in wealth management are outstanding practitioners and external input isn’t something they’ve been historically used to and so this can be a new experience for some.

Private equity often comes with a defined exit. Wealth management has historically marketed itself based on continuity, stability, and long-term horizons and now they need to sell to clients and colleagues what PE involvement means. What it often means is actually greater support and resources, which is to be welcomed, but it can also mean a defined exit which can concern clients and colleagues. Executives aligning their efforts to maximizing growth opportunities, optimising operational efficiencies, or enhancing market positioning doesn’t always mean a reduced service to clients. Our experience is that many PE firms actually invest to improve client experience, but the communication of the benefits of PE involvement needs to be carefully managed by leadership teams.

Each acquisition and phase of growth can challenge organisational values. Ensuring that PE partners’ and leaders’ vision is the same needs regularly reviewing. Also, executives must navigate the delicate balance between driving performance and upholding the firm's ethos, ensuring that cultural alignment remains intact amidst evolving dynamics. This demands a nuanced approach, wherein strategic decisions are informed not only by financial considerations but also by a steadfast commitment to core principles, and key people. Afterall, wealth management is a people and relationship business at its heart. When a PE firm first buys into a wealth manager, it can raise concerns amongst staff and therefore people management skills and an open door policy are very important.

In essence, the influx of private equity into wealth management heralds a new paradigm, one characterised by heightened expectations, strategic recalibration, and a pursuit of value creation. It can be an extremely positive environment for leaders, clients, and teams, but it isn’t without its challenges for executives. However, for those who operate well in this environment, it can be career enhancing as you will have developed yet another set of useful skills.