Vertical integration may be under the regulator’s microscope, but it was the breadth of services Sanlam UK has and the opportunity to help forge them into a cohesive business that played a big part in attracting both John White and Alfio Tagliabue to the company.
Tagliabue joined Sanlam in January 2016, initially as chief financial officer, before taking on the role of chief executive at Sanlam Four, the group’s asset management business, in October. White moved to the firm in that same month, where he serves as chief executive of Sanlam Wealth.
Their appointments were representative of a significant period of change at the firm. This had really accelerated from late 2015 when former Ashcourt Rowan CEO Jonathan Polin was hired to lead Sanlam UK, a newly created company which brought together all of its different domestic businesses into a single £10 billion entity.
Tagliabue had previously worked with Polin at Ashcourt Rowan, where he spent nearly five years as group chief financial officer until it was bought by Towry in 2015.
‘Jonathan joined in December 2015 and the brief was to make a more cohesive business of Sanlam UK. The hard graft of integrating Sanlam Wealth and the life company was already well under way by the time he joined,’ Tagliabue says.
‘I joined in January 2016, shortly after Jonathan. I originally joined as group chief financial officer, looking at what we do with the different businesses.
'What attracted me to it was across the board we had all of the components a modern wealth management company should have – financial planning, discretionary fund management (DFM), a life company that can deliver the wrapper and solutions, and the asset management business, which I lead. It was making sure it worked better and to one single aim.’
Meanwhile, White was tasked with integrating the DFM and financial planning businesses, which he admits was not easy, but he believes does ultimately provide a better service to clients.
‘The driving element of why we ended up here is the opportunity. We have all the component parts and can offer quality advice. It is hard and there aren’t lots of examples of where it’s been a success.
'But there is a view that financial planning and wealth management are becoming more aligned – they have the same regulatory, suitability and risk profiling requirements,’ he says.
‘You always get a better solution when both the financial planner and the DFM go [to meet a client] together. It’s not necessarily cost-effective for us in every case, but it is best for the client, ensuring there are common goals.’
The vertically integrated model clearly has its merits from a business perspective. Economies of scale can be delivered, bargaining power enhanced and the firm can offer a one stop shop service to the client.
Cynics will argue that in some cases, asset managers are simply buying distribution, and there is the inherent danger that the advisers are more inclined, and in the worst cases incentivised, to favour in-house products.
These concerns were raised by the Financial Conduct Authority (FCA) in its mission statement last month. The regulator warned that increasing vertical integration risks ‘reintroducing conflicts of interest that the retail distribution review (RDR) had eliminated’.
However, while White and Tagliabue understand the FCA’s rationale, they say that in their experience, if anything, vertically integrated firms strive even harder in their due diligence around fund selection to prove an in-house product recommendation is appropriate.
Both are keen to stress that Sanlam is focused on attracting external money with White pointing out that ‘with DFMs we equally want to deliver services to the whole marketplace’.
Tagliabue says the same rings true for Sanlam Four, with the ability to attract external money effectively the acid test of its proposition.
‘Vertical integration means a lot of things to different people, but our focus is on providing holistic advice and running funds that clients want,’ Tagliabue says.
‘We make sure we have the right solutions for clients and deliver the outcome, what’s inside it depends on their requirements – some have external components, others internal.
‘If you look at the asset management business, ultimately our development is predicated on us building a business that is third party market-facing. We are also very conscious from a Sanlam Four perspective, Sanlam Wealth is part of our market, but so are other wealth managers and funds of funds. Really our main objectives and products are only relevant if they have a broad appeal to those channels.
‘The fund managers would argue that it is more difficult to sell inside than it is outside – we need to be more careful when selecting investments.’
Sanlam Four has passed £800 million in assets under management, across six funds, with the pair saying that between a third and a half of this is external money. Tagliabue is keen for the fund arm to very much be seen as a differentiated player and believes the FCA was right to call out closet trackers, as for part of the industry, ‘the only active bit is the fees’.
‘We are very clear that we don’t want to play that game. As a relatively small asset management boutique, our emphasis is on building products that have a purpose,’ he emphasises. ‘Funds need to be differentiated and an interesting opportunity for clients rather than just trying to cover every single asset class.’
Next on the agenda is a non-benchmark focused income strategy, which the firm is looking to bring to market in around six months.
Additional growth is more likely be driven by hiring in new teams, rather than through acquisition, although on the wealth side, both options are viable.
White points out that he does not favour the consolidator approach though, with the need to be highly selective, on quality and price, paramount. He has plenty of experience of acquisitions, having been through four without ever effectively changing company – the latter being Arthur J. Gallagher’s acquisition of Baker Tilley’s employee benefits arm.
‘You can look at the potential for non-organic growth, we don’t want to be a consolidator and we need to make sure that there’s the right fit. You generally need some synergy savings or something that adds value to the client that will drive growth,’ he says.
‘We have a good presence in the South East and South West, but very little in the Midlands and the North. We also look to add individuals with different skills to complement the team. Paula Eddery from Thomas Miller Investment [where she was head of investments] joined us and has a real understanding of how accountancy clients work.’
Last week, the firm also recruited Charlie Parker, the former head of distribution at Neptune Investment Management, to help develop the wealth proposition, reporting into White.
With bold growth plans in place, additional hires are expected, with White keen for the company to lose what he describes as its ‘best kept secret’ tag.