An expanding UK wealth manager, Bestinvest, that is owned by private equity is very comfortable with its backing, and is preparing for further expansion.

Fears about private equity firms buying wealth managers are often unwarranted, rejuvenated UK business Bestinvest says as it continues to eye further expansion and hiring in a post-RDR marketplace.

While the activities of highly leveraged buyout funds in the past, the so-called “Barbarians at the Gate”, may have given private equity firms a bad name due to a perceived short-termist, asset-stripping ruthlessness, the reality is that many such players are now suited to finding high-growth firms, Bestinvest says.

“We think we have got a significant opportunity and they [private equity funds] want to support us and capture that opportunity. Their motivation is that we are entirely a growth story,” Peter Hall, Bestinvest’s chief executive, who joined the firm four years ago from UBS, told this publication recently.

In late February this year, Deutsche Asset & Wealth Management agreed to sell its UK regional business, Tilney, to a company controlled by the Permira funds who had already acquired Bestinvest. (There had been rumours that Deutsche was planning a sale for months.) On completion of the deal expected in June, Tilney, founded in 1836, and Bestinvest will merge with Hall as the CEO of the combined group. Deutsche Bank originally bought Tilney from private equity house Bridgepoint in December, 2006.  The assets under management for the Tilney/Bestinvest combined group will be £9.2 billion. The split of assets is 63 per cent discretionary, 17 per cent advisory and 20 per cent execution-only. The total headcount will be 400.

There have been critics of private equity funds owning such businesses. Brian Spence, co-founder of the advisor to independent financial advisors, Hamilton Spence, has told this publication in the past of his worry that private equity firms lack the long-term mindset to be good owners of wealth management businesses. With significant “dry powder” to put to work, and with the sector looking fragmented and ripe for consolidation, the area looks tempting for such funds.

Bestinvest’s Hall disagrees with the critics and says private equity firms may have once looked at low-performing firms to turn around, but they are more likely to want growth targets nowadays.

The Permira ownership gives the combined Tilney/Bestinvest group, which has already set out ambitious regional growth plans, firepower to grow, Hall said. “We will have resources to make further acquisitions,” he said, speaking at his firm’s offices off Curzon Street in London’s Mayfair district. He spoke alongside Jason Hollands, managing director, business development and communications. (Hollands rejoined the firm two years ago after having spent over a decade at F&C Asset Management.)

The firm has already gone a long way in a short space of time. Originally founded in the mid-1980s, in 2007 it was bought by management and 3i, the investment firm. Bestinvest later acquired HW Financial Services, part of Haines Watts, the accountancy group, in 2010. As part of a series of moves, in November 2012, it rolled out an investment “guidance” service, or “FIRST” – Free Investment Report Service And Tool. The service is designed to help any UK private investor to analyse their portfolio free of charge and without having to get Bestinvest to be appointed as an agent. (The hope, of course, is that such clients eventually sign up for other Bestinvest services.)

In recent research by Deloitte, it was estimated that up to 5.5 million people could find themselves “orphaned” in 2013 as advisors raise minimum investment thresholds to stay profitable as RDR-related costs bite. Bestinvest recently launched a joint venture, Times Wealth Management, with Times UK, the owner of the Times and Sunday Times newspapers.

Opportunity
As reported here over a year ago, Bestinvest was one of the earlier firms to spot an opportunity in how some banks have, as a result of rising regulatory burdens, hiked their investment minimums, freezing out even relatively wealthy investors deemed not rich enough to be profitable clients. The “orphan” client problem is seen by this firm as a source of new business. Other developments, such as UK finance minister George Osborne’s recent shock move to scrap the old compulsory annuity rule on defined benefit pensions, will give people more need for financial advice and guidance. All of which stacks up nicely for Bestinvest, it says.

“It all reinforces the importance of the advice gap issue, not just before, but at, the process of retirement,” Hall continued.

With the benefits of Tilney’s wealth management expertise on board, the firms can offer several elements, Hall said: wealth advisory; business-to-business work of helping IFAs; and targeting expats. The firm has partnered with an Asian financial advisor, Infinity Financial Solutions, and is looking to work on a similar partnership with a Middle East-based firm.

Part of the expansion process across the firm will involve hiring more business developers and financial planners, Hollands said in the interview (Bestinvest currently has around 60 of such people.)

One trait that the firm prides itself on, both men said, is there isn’t some rigid client segmentation approach: a client of the combined Tilney/Bestinvest group can come with a few thousand pounds or many millions. Hollands gets positively indignant at the idea that a person should be shut out of a business for not having passed some specific figure for wealth – he says it ignores how the modest saver of today can be the bigger client of tomorrow. “This industry tends to put people in boxes and labels them. Life’s more complex than that.”