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How £185bn Covid savings could bolster your wealth

by Press room

While it may sound staid, in reality the wealth management business is rather different. Suddenly, companies in this £1.8trillion sector, some set up in the 18th century, are at the centre of bid rumours, or are being taken over. 

Behind this buzz is the fast-expanding need for these managers’ services. Scarcely any workers now have ‘gold-plated’ final salary pension schemes, meaning they must make more provision for retirement. 

Many people have amassed large sums in lockdown savings that they wish to see appreciate. Mutual savings and investment firm Royal London calculates that 3.7m people, with a total of £185billion in cash, are ‘open to receiving professional financial advice’. 

But the British are still far less likely than Americans to pursue long-term financial goals, by seeking either face-to-face advice from a professional, or using the product range of an online platform. 

Opportunities abound although the challenges are also considerable. Wealth managers’ fees are under scrutiny and their compliance and technology costs are increasing, compelling smaller players to look for new owners. 

Susannah Streeter, an analyst at Hargreaves Lansdown, says: ‘Customers now expect the same level of service as that provided by Amazon. Wealth management is a competitive space. Scale is necessary to offer frictionless client journeys and smooth access to accounts, while ensuring high levels of security.’ 

Two developments account for the sector’s new-found allure. Martin Gilbert, the former joint chief executive of Abrdn, is now boss of Assetco, and on the acquisition trail – a signal that wealth management faces disruption. 

And the North Americans see the UK as a land of opportunity. They seem particularly drawn to a brand steeped in history. Royal Bank of Canada last month made an offer of £1.6billion for Brewin Dolphin, at a 51 per cent premium to the value of its shares. Brewin Dolphin was founded in 1762.

In January, Charles Stanley which dates back to 1792, became part of the empire of Raymond James, a US firm. 

Private equity groups Permira and Warburg Pincus are said to want to sell Tilney Smith & Williamson, which was set up in 1888. NatWest may be interested, presumably to cater for those customers who are insufficiently affluent for its Coutts division. 

As was detailed this week, Abrdn’s purchase of the Interactive Investor platform will be a payday for the latter’s backers. But could the £1.49bn price soon be seen as a bargain? 

Amid the excitement over deals in the wealth management sector, investors are snapping up shares in businesses tipped to be in buyers’ sights. But if you are thinking of joining them, be aware that bids may not emerge and that companies that fail to improve their ‘UX’ (user experience) will be hampered in their growth.

The Brewin Dolphin brouhaha has already boosted Rathbones. Shares in this FTSE 250 business are 2100p and broker Peel Hunt has set a target price of 2595p. The attraction is its ‘rarity value’, as Shore Capital says. 

Quilter is also the focus of attention, with brokers JP Morgan Chase setting a 180p target price for its shares, which are now 131.8p. Brooks Macdonald, a smaller wealth manager, is another beneficiary of the Brewin Dolphin effect. The shares, currently 2420p, are targeted to reach 2550p. 

There is no talk yet of a US suitor for St James’s Place, whose shares have fallen by 25 per cent this year. Its executive pay remains high, despite the furore in 2019 over remuneration, including diamond cufflinks given to sales people. But, despite such rewards and the poor performance of some funds, its client retention is impressive which may appease investors’ qualms. Jefferies, the broker has set a target price of 1740p.

Hargreaves Lansdown also has high client retention, despite the dent to its reputation from links with disgraced fund manager Neil Woodford. The giant platform promises to ‘redefine wealth management’ by ‘automating the hell out of everything’. Jefferies is less keen on Hargreaves, lowering its price target from 1100p to 820p.

AJ Bell, a key Hargreaves rival, perceives complexity to be a barrier to wider adoption of wealth management, which is why it has launched Dodl (as in ‘doddle’) an app with a limited choice of funds and shares. If this wins a younger audience, this could reverse the 36 per cent drop in its shares this year. Jefferies is targeting 400p, against the current price of 249p.

The enthusiasm for wealth managers may seem surprising, given the darker mood caused by the war in Ukraine. Households are set to spend about a fifth of the billions amassed in lockdown to cushion the blow of inflation. 

But those better protected from economic ill-winds are likely to take steps to bolster their current and future financial security.

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