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What sets Quilter apart from SJP, Brewin and Rathbones?

What sets Quilter apart from SJP, Brewin and Rathbones?

Now the dust has settled on last month's Quilter's IPO, we ask analysts what they make of the wealth firm's potential.

Since its IPO on 25 June trading has been mixed.

Shares had dropped below its admission price of 145p to 141.25p in mid-morning trading on 2 July, exactly a week after its float. They had  initially surged to 157p in the first hour of trading.

At 11.15am on 10 July shares were back in positive territory at 152.72, representing a 5.3% gain on their issue price. At 11.10am today they had climbed some more, to 154.22.

Having had time to consider the company, some analysts have voiced concerns over Quilter’s vertically integrated business model, which they say lacks focus and is something of a ‘missed opportunity’.

The firm, headed by Paul Feeney (pictured) is certainly diversified, providing advice, asset management and discretionary investment management, as well as platform-based UK and international investment and retirement services.

But this is not seen as a positive by all.

David McCann, a research analyst at Numis, who rates the stock a hold, says: ‘They have seven divisions which don’t seem well integrated. The key thing for me is that there isn’t any incentive to cross-sell products,’ he says.

‘If you are a financial adviser at Quilter, you are not incentivised to sell funds or discretionary services from other parts of the business. It seems somewhat of a missed opportunity to me.’

He adds: ‘Quilter needs to simplify itself. It’s trying to do too many things. They have a perfectly adequate business, and it’s a perfectly adequate group, but none of them are class-leading businesses.’

McCann also highlights Quilter’s single figure growth and earnings per share targets, which he says are significantly below the ‘best in class’ listed wealth manager, St James’s Place (SJP), which has targets for both of between 15% and 20%.

However, Stuart Duncan, analyst at Peel Hunt, believes ‘you can flip it the other way’ when looking at the different divisions of Quilter.

He says: ‘You can argue Quilter shares characteristics with the likes of Brewin Dolphin and St James’s Place, but the difference is they’re trying to bring all their divisions together.

‘It’s an interesting model. They’ve tried to create something that captures all parts of the value chain. It’s still to be proven, but it’s an interesting model, and different from the other similar listed companies.

‘Each part of the group looks good, and the operating margins of the platform and wealth management businesses look attractive.’ 

Awaiting the FCA review

The discussion around Quilter’s business model could all be academic, according to Paul McGinnis at Shore Capital, who thinks ‘it doesn’t matter what business model Quilter has as the regulator is about to tell us anyway’, in reference to the Financial Conduct Authority (FCA) review into the platform market.

Part of the review is looking at vertically integrated firms, with the regulator’s interim findings last year highlighting concerns over businesses where one company owned advice, fund management and platforms, and pointing out a perceived conflict of interest.

McGinnis is wary of the impact the FCA’s review could have on Quilter.

He says: ‘If companies themselves create controls to prevent these conflicts of interest, in some ways does that negate having put the model there in the first place?’

But he believes Quilter’s adviser business can help set it apart from the likes of Brewin and Rathbones.

McGinnis says: ‘Other wealth managers can’t grow their financial advisers like Quilter can, as they’d be stepping on the toes of the independent financial advisers they’re trying to attract, so it’s a good area of growth for them.’

One thing all analysts appear to share a view on is the inherent risks involved with Quilter’s current replatforming project.

Quilter switched software providers from IFDS to FNZ last year and costs have been estimated to escalate to £450 million, with the platform expected to be operational by either the end of this year or early 2019.

The firm has paid close attention to its competitors after Aviva’s new platform, also powered by FNZ, was beset by multiple problems, including a five-day blackout. Aegon also had to redeploy 200 people after it was hit by a number of issues following its Cofunds replatforming.

Numis’ McCann says: ‘You only have to look at some of the other replatforming failures to see what can go wrong.

‘Quilter’s management themselves screwed this up last year when they had to change providers, and the new provider has also screwed this up many times before. The industry itself has a bad reputation for this.’

While it is a different sector, he highlighted TSB as an example of where replatforming can go wrong, with 1.9 million customers of the bank losing access to online services. The fallout led its chief executive Paul Pester to say the bank is ‘on its knees’.

‘There’s an awful lot that can go wrong with replatforming. If you get it right, that’s great, you’ve got a new, better functioning platform, but there’s no real upside. But the downside risks can be huge,’ McCann adds.

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