Consumer Responsibility to Test Sturdiness of Defensive Merger

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The Rathbones/Investec merger is set to test the mettle of their defensive strategy. With the enforced ‘consumer duty’, set to arrive in July, companies in the wealth management sector will have to adapt quickly. This will mean putting extra pressure on already struggling markets, low fees, and subscale businesses.

Rathbones is responding to the situation by bringing Investec’s UK wealth arm into the fold. This all-share deal values Investec’s unit at a staggering £839 million. But this ‘outcomes based’ consumer duty may be difficult for discretionary managers such as Rathbones to meet, especially as investments don’t always turn out as planned.

As well as this, these new enforced rules will only increase the pressure on passive investment managers, of which BlackRock and Amundi are two of the biggest in the industry. Those in favour of the Financial Conduct Authority’s rules might be backing away, as with the current administration.

Rathbones’ and Investec’s combining of funds, amounting to £100 billion, puts them at the same standing as Royal Bank of Canada’s Brewin Dolphin deal. Apart from this, the Investec shareholders have a 41.3% economic stake and 29.9% of the votes in the combined business, safeguarding their interests.

Rathbones has seen a drop in their stock value of 10% since the start of this year, owing to their hefty investments in IT and struggling market conditions. Operating margins were at their lowest level in decades at 21.3% last year, with Rothbones aiming to bounce back to the high 20%s by 2024 – a goal that may prove tricky in light of the consumer duty standards.

Rathbones – now known as Investec Wealth & Investment – was founded in 1979. Headquartered in London, the company employs around 1,900 people and provides wealth management, trusts, and corporate advisory services. It is one of the leading independent private client investment management businesses in the UK and Channel Islands.