Retail bank Lloyds and the FTSE 100 fund manager Schroders announced a tie-up of their wealth, investment and financial planning businesses last year. Now, documents seen by the Financial Times have revealed further details for the planned advice business as the financial services duo aims to employ 700 advisers and increase assets under management from £13bn to £25bn.
Portfolio Adviser reached out to Lloyds but the firm declined to comment. Schroders is yet to respond.
Banks threaten advisers despite trust issues
Gavin Fielding, editorial director at Fundscape, said: “This will certainly get IFA advisers rattled as they will always see anything from the banks as a threat.” However, Fielding said Lloyds will need to overcome people’s lack of trust in the big retail banks.
Lloyds’ nearest high street rival would be Santander, he said, followed by HSBC, Barclays, Royal Bank of Scotland Group and the building societies. St James’s Place would be the obvious competitor in the restricted advice space followed by Openwork, Beaufort Group, Best Practice and Intrinsic.
Lloyds and Schroders could find a winning formula if they deliver an offering that is low cost, repeatable and digital, he said.
Where will the advisers come from?
While 700 advisers seems like a large number, it is relatively modest compared to SJP and Openwork, said Clive Waller, managing director at CWC Research. The numbers would be relatively speculative anyway, Waller added.
“They have said that they will transfer 300 advisers from Lloyds; they have also said they will look to acquire adviser businesses and they will recruit individuals in the market.” SJP would be a likely target for recruits, he added.
Former employees from bank branches could be another source of recruits, Fielding said.
“It is going to take a big training programme and one to two years to train somebody up from scratch to meet the necessary qualifications, and then they will not have experience. They do have a core business of 300 or so advisers that still offer independent wealth advice for high net worth private customers, but presumably will still have to service these.
“Otherwise they are going to have to buy existing advisers in or acquire firms at least to get started with a core business. I also wonder if with the demise of face-to-face branch banking there is something going on here with redeploying talented ‘counter staff’.”
SJP is the target
Waller said the target of £25bn would be based on the industry multiples, based around what a typical adviser brings in each year.
Fielding said Lloyds will be looking to follow in SJP’s footsteps, which he said is the model everybody now wants to be because it highly profitable and “seems to have dodged any regulatory bullets”.
He added that the £25bn in AUM should be achievable over three to five years due to the bank’s “computerised ability to spot excess money that could be placed somewhere else” and persuade customers to then see an adviser. “This is massive power especially as interest rates remain low.”
Benchmark Capital provides firepower
Waller said the “really exciting part” about the joint venture is that Benchmark Capital is providing the technology.
Benchmark chief executive Ian Cooke “understands investment, financial planning and technology, which is why the group has been successful”, he said. “Assuming that the new venture takes full advantage of what Benchmark can do, it should shake up the wealth manager market considerably.”
Waller said the challenge for James Rainbow, who will head the new advice arm, is to hit the recruitment and AUM targets they set and to be innovative, while managing the requisite quality and regulatory requirements.