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View the article online at http://citywire.co.uk/wealth-manager/article/a739672

Should investment integration headaches scupper a takeover?

by Danielle Levy on Mar 13, 2014 at 12:14

Should investment integration headaches scupper a takeover?

The perils of integrating investment propositions is one of the lesser publicised aspects of the latest mergers and acquisitions (M&A) trend that is gathering pace in UK wealth management.

‘Economies of scale’ and ‘enhancing propositions’ for the underlying client through M&A activity are familiar refrains. However, the potential liabilities and work involved in merging investment processes receive far fewer headlines.

Given the resources it takes to integrate different investment propositions, monitor underlying holdings and ensure there are no potential liabilities in inherited portfolios, can this aspect make or break a potential deal?

The argument follows that to make a deal worthwhile, an acquisitor will look to run a centralised proposition across the enlarged group and potentially merge the two. But bearing in mind the Financial Conduct Authority (FCA) warnings in recent years on centralised investment propositions, firms must make sure the regulator does not believe that clients are being ‘shoehorned’ into propositions or exposed to additional charges.

Towry, led by Andrew Fisher, is known for having a centralised discretionary offering but it is now running investment propositions from businesses that it has acquired concurrently, alongside its core discretionary range.

Part of the rationale behind this is to avoid the perception of any potential conflict of interest if the team did attempt to move clients into the centralised proposition. It has meant more research resources are needed to cover underlying fund holdings that came over in client portfolios.

It is a move Brooks Macdonald would not undertake as a result of acquisition activity. Chief executive Chris Macdonald said the investment offering of any potential target could make or break a deal.

If it came to buying another investment management firm in the UK, Brooks would look to integrate the incoming investment proposition into its centralised risk-rated fund management style as quickly as possible.

‘We see it as a key part if we are looking to integrate a firm. You should know about the investment management process and it should be part of the due diligence questionnaire,’ said Macdonald. ‘You cannot have a separate part of it [the business] running money in a different way. The acquisition would not happen.’

Following Brooks’ acquisition of Channel Islands-based Spearpoint, Macdonald said its risk-rated process forms the basis for the offshore business although there are differences between the propositions due to Spearpoint’s more offshore focus and non-sterling mandates.

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