Schloyds? Loaders? Lo-roder-oyds? We do not yet know what the joint venture between wealth manager Schroders and Lloyds Bank will be called but it has claimed it will be a ‘top-three financial planning firm’ within five years.
That claim alone is enough to raise eyebrows, and heckles, within the financial planning profession as yet another asset manager/bank lays claim to client-centric credentials.
In 2012 Lloyds abandoned mass-market financial advice following a number of mis-selling sanctions. In December 2013 it received a £28 million fine from the Financial Conduct Authority over incentivising unsuitable advice on investment and protection products.
‘The incentive schemes led to a serious risk that sales staff were put under pressure to hit targets to get a bonus or avoid being demoted, rather than focus on what consumers may need,’ the regulator said at the time.
Despite this chequered past, the bank announced in February it would return to financial advice, targeting £50 billion in planning and retirement assets by 2020.
Chief executive António Horta-Osório (pictured below) claimed at the time things would be different now.
‘We have a very different culture and approach in terms of what you were used to 10 years ago,’ he said. ‘What we are going to do is very different.’Gap in the market
At the same time as Lloyds put forward this ambitious advice target, the bank also said it would be moving the £109 billion insurance Scottish Widows Investment Partnership mandate, which was being run by Standard Life Aberdeen (SLA).
This insurance mandate was central to how Lloyds plotted its advice return. Last week it announced it had given £80 billion of this mandate to Schroders (£30 billion in passive funds was given to BlackRock).
As part of this £80 billion mandate, Lloyds will join forces with Schroders to form a new financial planning business.
This joint venture (JV) will be 50.1% owned by Lloyds and 49.9% by Schroders and will provide financial planning for ‘affluent customers’. The two companies said it will ‘address the growing gap in the advice market through a personalised, advice-led proposition’.
Lloyds wants this new financial planning business to be top three in the UK for assets under management within five years. This is an ambitious goal but it is receiving a £13 billion boost from assets being moved from Lloyds’ existing wealth management business, along with ‘associated advisers’, to the JV. It will also benefit from the bank’s customer referrals.
The JV, set to be launched by mid-2019, will be run by Schroders’ head of intermediary James Rainbow (pictured above). Scottish Widows chief executive Antonio Lorenzo will act as chairman.
High-net worth clients will get access to Schroders’ discretionary fund manager Cazenove Capital, although it is unclear whether this is also the case for the rest of the JV’s clients. Lloyds is also taking a 19.9% stake in Schroders’ UK wealth management business.
Although a Lloyds spokeswoman said it was ‘too early in the process to determine specific details’, New Model Adviser® understands the JV will offer restricted advice.
Lloyds and Schroders confirmed the JV will use the technology of Schroders-owned Benchmark Capital, which has an adviser platform, Fusion Wealth, run on SEI technology.
Benchmark chief executive Ian Cooke told New Model Adviser® he will work with Lloyds to provide a complete range of technology tools for the new venture, not just the investment platform.
‘Lloyds wants to have a complete joined-up technology solution for its clients, but at the heart of it will be a good quality financial planner,’ he said. ‘They don’t want to just be direct to consumer; they want to offer a good digital service.
‘Benchmark is not about saying: "there is your customer relationship management [CRM], and then your platform." It doesn’t work like that. We offer a tech stack, which includes a CRM, a platform, a client system and they all talk to each other.’
As well as adviser technology and a platform, Benchmark owns an IFA, Sussex-based Aspect 8, and an IFA network, Best Practice. But Cooke (pictured above) indicated these businesses would be kept separate from the new financial advice firm as they are a ‘totally different [client] segment’.
Where will the Lloyds-Schroders advisers come from? The pair’s market statement said ‘associated advisers’ from Lloyds’ wealth management business will transfer to the JV, along with £13 billion of wealth assets.
In Lloyds’ retail bank there are 1,124 individuals with CF30 permissions (not all of these will be financial advisers). But there is an ample pool of people Lloyds can look to train up as financial planners as it transfers assets and staff over.
The Chartered Institute for Securities & Investment (CISI) already has a programme to offer those that hold its chartered wealth management qualification a quicker route to becoming certified financial planners. The CISI has also been training financial planners for rival bank HSBC, and it is easy to imagine Lloyds will want to do something similar.
Any transfer of staff creates uncertainty when it comes to jobs. In a statement sent to New Model Adviser® a spokesman for Unite the Union said it had already engaged with the bank. ‘The trade union has held initial discussions with Lloyds regarding this deal,’ it said. ‘We note it is still subject to regulatory approval.
‘We will judge this deal on the commitments the employer gives on job security and maintenance of terms and conditions. Any enforced job losses or cuts to terms will be strongly opposed.’
A Lloyds spokeswoman said: ‘While it is too early for us to speculate on recruitment plans for our Schroders partnership, to achieve our ambition of becoming a top three UK financial planning business within five years we’ll need the best people, world-class investment expertise and best-in-class technology.
'This will include transferring approximately £13 billion of wealth-related assets and associated advisers to the joint venture and, in line with our commitment to colleagues; we will speak to them and work with our union partners before releasing more information.’
What has changed?
Lloyds has a mountain to climb to prove it understands financial planning.
‘I can’t see them doing financial planning; it will be financial advice,’ said Nathan Fryer (pictured above), director of outsourced paraplanning firm Plan Works. ‘It will be a documented process of: "you have x and you should put it in y". I think it is going to be targeted sales.’
Fryer said the initial statement from Lloyds that it will target ‘affluent customers’ to bridge the advice gap indicates it does not understand where the advice gap is.
Fryer also pointed out Lloyds would need to get client permission to transfer £13 billion of assets from the Lloyds wealth arm to the new advice business, which could create challenges.
Phil Young (pictured above), managing partner of consultancy Zero Support, said the pair are making a play to rival St James’s Place (SJP) but will not achieve the desired scale without acquisitions.
‘Everyone wants to be one of two things: SJP or Hargreaves Lansdown,’ he said. ‘This is an SJP play. What everyone forgets is that SJP and Hargreaves Lansdown have had a 20-year run at this; not just to build a business but to keep going at it.’
Young said the market for platforms and wealth managers is beginning to plateau. The very morning of the announcement, SJP reported a slowdown in quarterly growth. That said, its £2.5 billion inflows pushed it over the £100 billion total assets mark, illustrating the edifice that has been built over the years.
‘I think it will be a case of: go into the market, get it wrong, make a lot of noise in the short term, struggle in the medium term, and pull out in the long term. And then go through that cycle again in another 10 years,’ said Young.
‘I don’t see any evidence there is anything different in the way they are approaching it this time.’