Interviews with Smith & Williamson’s co-CEO David Cobb – of which there are many, for reasons which quickly become clear as he turns on an innate erudition and charm – typically start with a wry reflection on his 30 years with the company.
In an era of mercenary self-interest and relaxed corporate hiring and firing policies, that length of tenure obviously makes him a City outlier. But more than a sense of novelty, having a consistent vantage point since the days of the 1980s miners’ strike, Band Aid and the BT privatisation has afforded him a particular insight, he says.
‘Back then we were able to serve maybe around 0.5% of the UK population. Now, that has opened up to something more like the top 10%,’ he says.
‘It’s undoubtedly one of the biggest changes of my career, but the cost of this democratisation is that we have to find and exploit new areas of efficiency wherever we can find them.
‘We are effectively the last independent player [of our size], with the majority of our peers either publicly owned or held by private equity – that’s just where the industry has settled.
‘The advantage of being where we are is that we can see a real return on our investment. There are very interesting things happening in technology right now, and there is some easy potential in raising our profile, which in name awareness in our target market is running in low single digits.
‘If an IFA in Bournemouth has a choice between brand X and Smith & Williamson, if we don’t have the profile then we are unlikely to have the chance to win those assets.’
The consolidation and investment follows periods of reorganisation and growth.
The company reorganised as two limited liability partnerships under a holding company in 2012, effectively recognising the managerial division of reporting between its accountancy and wealth management divisions, which had been in effect for the previous 10 years.
The chief executive role was then divided between Cobb, who had spent his career in private banking, and co-chief executive Kevin Stopps, who heads the accountancy team, in 2013.
‘We have a broader spread of knowledge between the two of us than an individual could carry,’ Cobb told Accountancy Age last year.
Structural shifts in the asset management industry, not least the retail distribution review, have also been grasped.
Assets under management at the business rose 4% over the second half of 2014 to reach £15.3 billion, effectively consolidating the business’s place in the top tier of UK private clients. Group-wide operating income rose 6% to £103 million and profit rose 14% to
‘To enhance the delivery of our services to clients, we are increasing our investment in infrastructure to ensure that systems, processes and controls are maintained and strengthened. Similarly, we are investing additional resources in marketing and business development,’ Stopps said at the time.
While asset management has contributed a disproportionate source of profits, it is also an increasing area of expenditure. The company acknowledges the basic commercial imperatives of keeping abreast of industry changes in distribution and client engagement (‘I have clients who still largely exist within Smith & Williamson as filing cabinets full of paper,’ Cobb says. ‘We still end up sending out too much paper. I know that if I were a client of the company I would want to be able to do much more online.’)
Like the rest of the sector, it has recognised that regulatory change is a continuum rather than a series of amendments. The company last year appointed its first director with sole responsibility for compliance.
‘As a share of our profit it isn’t growing, but the expenditure is certainly keeping pace with our profit growth. I would estimate that we need to keep on growing our income at around 8% a year just to keep pace of what [compliance] is costing us.
‘It really does require the full-time attention of one person who knows what they are looking for, because change that might open up a huge liability for your company may well be buried somewhere on page 82 [of a Financial Conduct Authority report] and if you don’t know to look for it, you won’t know it is there.’
Contributing to what is rapidly becoming the most popular parlour game in wealth management, Cobb estimates the minimum assets required to ensure the future viability of a business is £5 billion. (For the record, that’s a high-ball figure in a series that has so far gone as low as £1 billion and spans a range of points in between.)
The bulk of the new money the company expects to deliver growth over the foreseeable future will be in the range of what it describes as core clients – those with less than £100,000, below the cut-off point for its family office service.
The company plans to increase what it spends on marketing to the broader public – in particular via arts sponsorship – but nonetheless expects the majority of new business to be delivered by IFAs. Cobb says he would never say never to unitisation, but for the time being the service remains delivered via bespoke one-to-one arrangements.
Since launch three years ago, S&W’s third-party adviser service has gathered around £55 million, and makes up an increased share of new assets every year.
‘I think the market has also moved on a little from 2012, when there was this rush to package up models and place them on every platform that you could’.
He points out that the consolidation of much of the mass-market assets has taken place but there remains plenty of room around this undifferentiated majority to offer innovation – for instance, linking asset management with services delivered by his accountancy colleagues.
The accountancy division remains a key referral generator, although Cobb points out this tends to be lumpy and economically cyclical, driven as it primarily is by high-value, low-frequency business disposals.
Of increasing importance within the higher-end family office business is the internationalisation of London’s wealth, which also offers the advantage of new clients coming into S&W’s home market, rather than having to take the company to them. Once again, he sees easy dividends in increasing the company’s brand recognition.
He points to Hargreaves Lansdown’s selection of the company alongside Brooks Macdonald at the end of 2014 to service clients with assets above £100,000, whose needs are too complex to be met by its multi-manager service, as a further way the company is diversifying introductions and distribution.
‘A lot of the pensions savings accumulated through the 1980s and 1990s are now being drawn down. As much is now coming out of the back end as is going in the front end, if you will. London has clearly become a centre, if not the centre, of international wealth and a lot of those people will want to leave their money here.’
In terms of the internal capacity to deliver growth, the company has a historical antipathy to major acquisitions, which have been few and far between. Cobb says it expects to add targeted team hires, but believes changes in internet distribution have made geography much less important than it once was. The company’s 11 offices are probably enough, he adds.
‘We are not going to be able to break Yorkshire [for instance] by opening one office, because the way local clients think of it is as basically four geographically separate regions. We have a great network of offices, but to be long-term sustainable, I think they need to have a clear strategy to reach £1 billion in assets.
‘There isn’t any point our opening an office in Bournemouth when those clients could be very easily serviced out of Bristol. The same thing in Edinburgh – there really isn’t any point our opening up an office in a very overbroked city when those clients are easy to serve from [our office in] Glasgow.’