Investors say that the acquisition by Rathbone Brothers of Speirs & Jeffrey is a particularly telling statement of the pressures which are leading to the consolidation of the fund management industry. If Speirs & Jeffrey has decided to hoist the proverbial white flag, then many of its smaller brethren are likely to follow.
Speirs & Jeffrey has an enviable reputation in Scotland. Not only was it the largest independent fund manager in the country, with £6.8bn of assets under management, but it has a conspicuously loyal and longstanding client base.
Its history dates back to the early part of the last century, many of its customers have been with the firm for generations, and indeed it boasts that 75% of its 8,500 customers have been with the firm for more than decade. Assets under management have continued to grow steadily, and by no stretch of the imagination could the company be said to be in distress.
Yet it decided some time ago that the company was no longer viable in its current form, and had been holding talks with a number of parties for several months. As its chief executive Russell Crichton said in a letter to customers, his board has concluded that the company is too large to operate as a boutique but too small fully to respond to the rapid changes in the industry and continue to develop as it is.
Crichton especially pointed to the need to contiue to invest in IT and digitalisation as a key benefit of being part of the much larger company that Rathbone is. Indeed many fund managers say that not only are efficient IT systems and stronger analytics an important part of their investment offering, but marketing increasingly required flexible platforms which have an easy interface with intermediaries if they are to gain new customers.
Crichton also pointed to the breath of services that Rathbone’s offers, with a strong position in charities and financial planning, as well as a banking licence as being central to the decision to sell to that company.
Implicit in this is that the old paradigm of good customer relations, and at least adequate performance, which for long was the rock on which private client asset management was built, is not enough in the current market. Customers increasingly need a breath of expertise beyond a personal service, which understands investment objectives and can deliver some growth in the value of assets. This requires a holistic understanding of a customer’s needs, often across generations with needs stretching from pensions to school fees, and an ability to provide many of the solutions associated with a private bank or independent financial adviser.
Crichton did not mention regulation as a factor in the decision to sell, but it will have assuredly have been one. The cost of regulation has been inexorably rising with new rules and directives such as MiFiD II bringing dislocation to business models and making investment in compliance unavoidable.
That a company with £6.5bn of assets under management and annual revenues in excess of £25m finds that it has inadequate scale, and that despite rents in Glasgow being materially lower than in much of the south of England, is a salutary reminder of how much the market has changed in the last decade, and Speirs & Jeffrey will assuredly not be last medium-sized manager to look for a larger parent.