Brokers - will we see more consolidation?

As property professionals who work with and frequently buy financial advisory and mortgage services, we believe Britain's advisory market is incredibly diverse and complex yet sustainable. The barriers to entry are virtually non-existent except for perhaps an exam (or a few) that brokers and small business owners need to take to qualify for the job, and start trading. While there is consolidation happening at the top, there is incredible diversity in the middle and lower tiers of the market, with new businesses and advisories opening shop every week. I do not believe there is a cause for concern with the mergers. For larger businesses, it is an attractive opportunity to snap up smaller firms for attractive P/Es and incredibly good valuations. Smaller firms would do well to maintain their liquidity and only go after opportunities that they can genuinely service. Financial Services is a reputation-driven business, and one bad step can cause irrefutable damage at times.

I feel we will see more smaller mortgage broker firms consolidating. I hear that some AR Brokers are feeling under pressure to write minimum business levels to be allowed to continue to trade with their network. These firms, typically one or two Advisors, may decide to call it a day, however, valuing such businesses is always difficult because there is no residual income (unlike an IFA). It is unlikely that they will receive a large cash sum when they sell up and may need to look at more creative exit strategies.

2023 has been the final straw that broke the camels back for a lot of financial companies what with the Brexit interference to the market, Covid Lockdowns, the Ukraine War, and the ongoing Cost of Living Crisis. Companies after Covid were expecting an easier time having drawn down a lot of their reserves during that period to survive, the elongation of these crises occurring with related market slowdown has murdered firms' plans. The network model, with the new FCA requirements from the end of this year, is going demonstrate further weakness in that branch of the market as their Appointed Representatives will need much more close monitoring and reporting up the chain. This could bring greater consolidation pressures for AR advice firms and networks.

We have had a couple of consolidation cases where a lot of work was done over covid and now the loans and 2nd charges are getting out of hand. Sometimes they are due to remortgage but are not meeting affordability due to the extra loan payments now on record. We have found a few lenders who can capital raise quite high. The worst one was a chap who took out 2 2nd charges and 2 unsecured loans on his RTB house. The RTB agents didnt find out until we needed to look at a deed of postponement for the remortgage. Bad advice from a high street lender too! We are sorting this out now, but its been a complicated fight with the housing association who put up defences as soon as they found out they didnt know about the 2nd charges!

Scale is king - again! Not only is the dash for scale due to margins, it is also due to the need for increased IT development. And it isn't just domestic firms looking for acquisitions, we have spoken to a number of US, European and Asian businesses looking to acquire in the UK markets this year. Some of this has been down to the weakness of Sterling versus the US Dollar but also because of real perceived growth opportunities in the UK.
The market is evolving at a rapid pace with demand for slick end-to-end automation at an unprecedented level. Larger firms will be able to deliver this mass market service whilst smaller players will have to differentiate themselves by providing a more personalised service focussed on non-mainstream clients and products.
This promises innovation for clients but should also open up opportunities for SME's to step into market areas the mega players vacate.