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Can listed wealth firms overcome short-term pressures?

Can listed wealth firms overcome short-term pressures?

Wealth management is a sector undergoing profound change and sadly for listed wealth firms, this is a reality that is difficult to hide from.

Board reshuffles, technology U-turns, profit warnings and turnaround attempts across the industry have all been publicly broadcast to the market over the past few years by the listed names.

This has caused some to question whether it is a good idea that companies responsible for consumers’ long-term savings and investments should be subjected to the short-term pressures of the market and shareholders.

Daniel Pinto (pictured), Stanhope chief executive and founder of think tank New City Initiative, takes this view. He has grave concerns that CEOs of listed companies are too prejudiced by quarterly results and short-term incentivisation.

Detached leaders

He points out that some management teams of listed firms do not invest a significant proportion of their net wealth in their businesses, which means an alignment of interest is largely absent. In his view, this has contributed to declining capital expenditure, which is damaging for the real economy.

‘CEOs are no longer the captains of industry that created the industrial empires we know today.
They used to be owner-managers but today most of the CEOs are not substantial shareholders in their business,’ he said.

‘They are professionals who are incentivised by shares, but rarely invest a portion of their net wealth in the company they lead. At the level of the entire system, if you have all of these large corporations no longer managed by entrepreneurs but by administrators-in-chief you lose your urge or capacity to look to the future.’

His criticisms are not shared by others, however. Nick Hungerford, founder of Nutmeg, says listed wealth management companies do not necessarily have to bow down to short-term pressures.

10-year horizons

He highlights Google as an example of a business outside of wealth management that has been clear with its shareholders that it is making some decisions on a 10-year time horizon.

‘I think the industry requires a long-term view. This is possible, but you need to have the right shareholders and management,’ he said.

‘What I don’t think is possible is to run a successful wealth management business for short-term profit.’

While Hungerford’s low-cost discretionary firm Nutmeg is currently privately owned, its founder says he is not intent on keeping it private forever.

He cites Schroders – which is listed but still has family ownership – as an example where a long-term view is supported by shareholders. Whether a wealth management business is public or private,

Hungerford says that giving staff the option of owning shares and having their own money managed by the business should be essential. He also takes the view that a degree of transparency for clients and employees concerning how the business is run can be no bad thing.

Capital raising

European Wealth Management opted to list on AIM in early May. The decision was made to facilitate the raising of capital to fund future expansion, chief executive Rod Gentry told Wealth Manager. He argues that both private and public wealth management businesses alike are subjected short-term pressures from shareholders.

‘We are subjected to short-term pressures whether we are listed or not. The shareholder base we have at the moment is supportive of the rationale behind the development of the business. Clearly, as the free float increases, our shareholder base will change as time goes on, but we feel quite happy with these steps,’ he said.

The move will also make it easier for clients and staff to buy shares, while Gentry believes it also gives the business greater credibility in the broader market.

‘To some extent it is a measure of our size or it can give a degree of reassurance to know we are a larger business that is established and quoted on the market,’ he said.

He added that being listed would also prove supportive in terms of corporate governance, while the AIM listing also helped the business to tidy up what was a complex capital structure.

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