Buying businesses that do not fit culturally, or end up causing an operational headache, is a recurring nightmare in the wealth management sector.
Brown Shipley incoming head of private banking Hugh Titcomb is keen to avoid this fate.
While he is willing to survey the opportunities that are out there at the moment, he says the private bank’s growth strategy is not predicated on doing deals.
‘Acquisitions are certainly something we will consider here and we regard it as part of our growth strategy, but our growth strategy is not based on a requirement to make acquisitions,’ he says.
‘You need to understand why you are buying it, what the business is going to do for you and will it add scale. Can you make sure you can benefit from that scale through operational gearing or enhance the service offering you have got to support your clients?
‘Above all, you have got to make sure the acquisition is truly going to add value, and you can integrate it in such a way that it works. It really goes back to understanding the culture and the role the business can play in the combined businesses,’ he explains.
As firms across the industry grapple with stalling organic growth prospects, regulatory costs and a lack of scale, deals are rife right now and Titcomb says competition among acquisitors is intense.
‘There are lots of potential buyers out there, so it is very important to focus on what you are trying to achieve by buying businesses,’ he adds.
Titcomb is certainly well positioned to comment, having run Principal Investment Management between 2009 and 2012, during which time he oversaw the acquisitions of Border Asset Management and Iain Nicholson Investment Management, which he says proved to be successful deals.
He took the job at Principal after it was bought by South African giant Sanlam and during his time there the business grew assets from £780 million to £1.9 billion.
In the course of 2012 Titcomb decided it was time to take some time out after a 30-year spell in the industry, primarily in senior roles across private banking, fund administration and wealth management.
By the summer of 2013, however, he got itchy feet. After surveying a number of opportunities he took on the role at Brown Shipley, attracted to the bank’s heritage and proposition.
‘It was a name I knew from the past, but its profile in wealth management is quite low. I saw in Brown Shipley a combination of services and a client focus that made absolute sense to me,’ he says.
It certainly appears to be an interesting time for Brown Shipley as a business, having undergone some change over the past few years following the acquisition of its parent KBL group in July 2012 by Precision Capital, a Qatari-backed firm.
After an internal review at the end of 2012, the group reduced headcount and revised its growth strategy.
So far 2014 has also proved eventful, with Titcomb joining amid a board shake-up, which saw executive director and ex-cover star Robert Smoker and Robert Kitchen step down from the board. Smoker has since left the business after 40 years.
Chief financial officer Andrew Curran, while chief executive of Newcastle Building Society Jim Willens rejoined as a non-executive director. Titcomb, meanwhile, joined the executive committee.
More recently Kevin Doran also took on the mantle of chief investment officer, with Peter Botham changing role to develop a proposition for advisers.
Being a part of the broader KBL group and having the ability to tap into their resources and capabilities was another draw to joining the firm, Titcomb says.
He adds this is already happening when it comes to its resident non-domicile proposition and on the investment front, with Doran working more closely with group CIO Stefan Van Geyt.
‘If you look at Brown Shipley and you can think about me coming on board, Kevin Doran appointed as the CIO, Peter Botham then developing a proposition to support the IFA sector. Essentially we are making sure we have got the right structure in terms of management breadth to focus on the opportunities in terms of our existing clients, future clients and the IFA channel is very important as well.
‘The delivery of quality investment performance is absolutely key and that capability has had some focus.’
There have been a number of changes on the investment front in recent times, with the hire of a string of analysts and a concerted effort to bring together equity and bond analysis under new CIO Doran.
‘We have got a strong Credit Sterling Bond fund and want to build on that credit process. It is a sin for equity investors to not consider balance sheet and cashflow analysis,’ Doran says.
Equally, bond holders need to be aware of the interests of shareholders, and be cognisant of the impact of things such as share buy-backs or the impact of a private equity buyout.
According to Asset Risk Consultants’ figures, Brown Shipley’s aggregate data for ‘balanced clients’ in 2013 posted an average return of 10.4%, outperforming the average by 1.2%. In 2012 Brown Shipley’s balanced category was up 9%, outperforming the average by 1.3%.
Within a typical balanced portfolio, it is overweight equities versus fixed income and is particularly bullish on US equities at the moment.
‘We are into the realms of “there is no alternative”. If you look at yields on asset classes and compensation for taking risk, I am not suggesting that equities are cheap but in absolute terms relative to other asset classes they are the standout asset class for allocating capital,’ Doran says.
A balanced portfolio has 65% in equities, 15% in bonds and a 15% allocation to alternatives such as total return funds, structured products and property.
The company currently runs some £3.5 billion in assets and attracted £320 million in gross inflows in 2013. Revenues also stood at £41 million over the same period.
This year, Titcomb is targeting asset growth north of that figure as he seeks to make sure the business is fully leveraging off its investment management, private banking and wealth planning capabilities and offering a coherent service.
Since joining the business a number of months ago, he reflects: ‘The opportunity is exactly how I saw it. I think the opportunity is absolutely real and it is essential to have growth plans in terms of how we take the business forward.’
He believes the backdrop for wealth management businesses is particularly supportive, given the pension changes announced in this year’s Budget. Developing the financial planning service is a particular priority, alongside continuing to hire quality people across the business.
‘Our core components are developing our wealth planning strategy and then thinking about our target market. Our areas of focus will include charities, entrepreneurs, sports and entertainment, alongside resident non-domicile clients.
‘These are examples where we believe we can gain some traction, but also it is about looking after our existing client base and being able to provide a complete service, to be appealing for future clients.’
Over a year ago the private bank underwent a tariff review, with a typical investment management client charged 1.25% for discretionary management, inclusive of transactions.
While Titcomb believes its rates are competitive, he says clients should not lose sight of the value proposition, performance and service.
Looking ahead, raising Brown Shipley’s profile and generating organic growth remains the key priority, although the company is selectively monitoring potential deals that can add value.
‘If I look at life from a Brown Shipley perspective, we are a business that is of a size but we are not the largest player in town.
‘To build the business, in terms of the impact on the market as a whole, it is not going to be huge. We can go out and add to our client base and it makes a difference to us to do that.
‘Some of the larger players have got more of a challenge to get genuine net growth but I think we have a compelling proposition and I believe the personal touch we provide does attract some interest and I think we have proved to ourselves and others we can get genuine growth.
‘We just need to work hard to make sure our proposition is compelling and we convey that to potential clients,’ Titcomb adds.