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Profile: Quilter Cheviot boss Baines sees more consolidation ahead

Profile: Quilter Cheviot boss Baines sees more consolidation ahead

Some 19 months on from the merger of Quilter Cheviot, which created one of the larger wealth managers in the country, chief executive Martin Baines says the deal is now paying dividends.

‘We went through a year where we achieved some very good financial results. We brought two businesses together, moved to one central location in London, brought the teams and individuals together and had a successful year on top of that.’

Quilter had £8.2 billion under management when the merger with Cheviot Asset Management was agreed in November 2012. By the end of June 2014, the combined Quilter Cheviot business ran £15.8 billion – almost double that figure, while at the end of 2013 revenues stood at £128 million.

‘The Cheviot merger did a number of things: it gave us critical mass in London and it also helped to balance our business,’ Baines says.

‘We have great connections and tenure in the IFA market, and the Cheviot business was growing but was predominately a direct firm, so we [now] have a good balance in the business between direct and IFA.’

While the Quilter Cheviot merger was a major deal, it does not necessarily spell the end of the firm’s expansion, because the demands of the industry forces rivals to reposition themselves, throwing up opportunities.

 

‘Every year I have been in the industry there has been talk of consolidation, but you can see it happening now and there are a number of reasons for that,’ Baines says.

‘It could be people who have not managed to reach a critical mass or get the assets under management; it could be larger organisations divesting themselves of non-core activities.’

These are situations that could provide chances to make acquisitions, the chief executive adds, admitting that the firm ‘is shown most of what is happening in the market’ after undertaking such a high profile merger.

‘We are in a position to consider those, although we would be very selective. I come back to Cheviot – it was the deal we should have done and did do, but we will look at most things in the market.’

Boutique wealth management firms, in particular, could provide fertile ground for Quilter Cheviot to expand further as they struggle to gain traction.

‘There are some very good smaller wealth management groups, boutiques, who are very capable, but with so much of the costs in this business going to scale, if they are not big enough, no matter how good they are, there is a moment when they have to decide what they want to do. So we would always look and we would always be interested.’

 

The chief executive stresses that ‘we don’t base our model on acquisitions’, and that simply collecting assets was not the main driver of the Quilter Cheviot business plan.

But Baines, who has been at what was Quilter for 20 years, and chief executive for 10 of those, acknowledges having a degree of scalability will be key to which businesses survive in the post-retail distribution review (RDR) world.

‘That will define your winners and losers. If you are going to scale your business, you have to have the ability to scale your platform and technology. You have to have the ability to deliver the proper service and the proper investment process. The winning models will be those that can scale all three and also have a good management team.’

Baines adds that the enlarged Quilter Cheviot will not follow in its peers’ footsteps by diversifying the services it provides, or dropping fees to lure in more assets.

‘This idea of the race to the bottom is just not attractive to me – there is a price that is right for any business and it has to be fair,’ he says.

Some of Quilter's contemporaries, including Brewin Dolphin and Rathbones, have expanded their financial planning arms.

 

While Baines says it was ‘tempting’ to diversify in to that area, it is not true to Quilter Cheviot as a business, because it would be ‘counterintuitive’ to compete with the advisers they work alongside.

‘We have spent 20 years building those relationships. A number of other firms combine the two, but we don’t have any immediate plans to do so. Every firm has got to build its own business model and ours has been to focus on what we do best – it would be slightly counterintuitive if we were to go out and offer advice when we are partnering with people who already offer that advice,’ he says.

Quilter has been at the centre of a number of deals over the years. It was acquired by Commercial Union in 1988 and then by Morgan Stanley in 2000. In 2009, Citibank and Morgan Stanley held it as a joint venture, before Quilter was finally acquired by Bridgepoint. The private equity firm helped finance the merger with Cheviot Asset Management last year.

Throughout all of the ownership changes, though, Baines says they have not been an issue for clients.

‘Look at that history, from when I joined in 1994 a lot of my colleagues are still here, whether we joined from Citibank or Morgan Stanley, we have had very cordial relationships with what have been very good owners,’ he says.

 

‘As long as clients get the consistency of service and outcome, then we never have people tell us they don’t want to be part of x or y.’

Recent press reports have suggested Bridgepoint will look to divest Quilter Cheviot via a flotation on the stock market, but Baines declines to comment on whether an IPO would be the best thing for clients.

‘I see speculation all the time but we will just focus on what we are doing and work that out down the line,’ he says.

After graduating with a degree in economics, Baines initially trained with KPMG as a chartered accountant. He then had brief stints at Brewin Dolphin and Albert E Sharp before joining what was then Quilter Goodison in 1994.

Baines was responsible for overseeing Quilter’s rapid regional expansion during the 1990s as head of onshore branches.

‘We built good teams of people and were very patient with the build out. It was in large centres of population. We could scale both with clients and qualified individuals, focusing on the major cities,’ he says.

The only regional overlap after last year’s merger was in Liverpool, where Cheviot Asset Management’s office staff moved in to Quilter’s pre-existing office.

 

This means the firm now has 13 offices across the UK, Jersey and Ireland with 507 staff and the chief executive says he is also considering opening new branches in Newcastle and Leeds.

At the end of June, Quilter Cheviot had 34,242 ‘core clients,’ across its discretionary portfolio service, managed portfolio service, and direct, platform and advisory services. The average portfolio size for the discretionary portfolio service is £564,638.

Baines says he is not surprised to find himself still at the business after two decades, although he might contemplate a change of role at some point in the future.

‘I can’t be luckier really, doing a job I enjoy surrounded by a lot of very talented people, and clients and IFAs that we like,’ he says.

‘At some point, there is always a moment where it’s right to think about the role, but I have no ambitions to go anywhere else. It’s a great business.’

He is also evidently proud of the senior hires made post-merger, including Jane Seymour who joined as marketing director after more than 20 years at Rathbones, and Matthieu Duncan, who came on board as chief operating officer after a role as head of business strategy at Newton Investment Management.

‘Hopefully people come to us because they can see we are committed both to direct and IFA channels of distribution and I want people to live out their careers here. It is something I have managed to do.’

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