The price-to-earnings valuation of wealth manager IFG was found to be under half the level of its peers, and Hargreaves Lansdown was revealed to have one of the highest valuations...
A report issued by Edison Investment Research showed that the 2011 P/E valuation across the wealth management and retirement solutions providers discussed in a recent report ranged from under 7 times earnings through the high twenties.
Most of the wealth managers were valued at around thirteen or fourteen times earnings. IFG had the lowest valuation, trading at six times earnings while the Hargreaves Lansdown valuation of 31 times was said to discount a considerable growth in earnings relative to financial peers.
Also in the report, Edison said that rising GDP per head growth, an ageing population and wealth transfers all point to the need for more wealth management services.
The research firm said the opportunity from savings is “staggering” as the market plays catch up for under-saving since the late 1990s.
The research firm said that increasing wealth created triple-geared opportunities for wealth managers. As average wealth per customer rises, ad valorem fees and transaction commissions based on value also increase. The rise in demand for sophisticated products will also point out the need for more advisory services.
This opportunity comes at a time when smaller providers may be pushed out of the market due to increased regulation.
Edison says: “The pain from increased regulation will be unevenly spread. Simple, transparent, cheap products will be largely unaffected, while complex ones with unclear charging structures will see a marked increase in their compliance burden. For smaller providers this increased cost may be terminal, potentially reducing IFAs [independent financial advisors] by a third and seeing about two million customers seeking new advisers.”
©2011 funds europe