The decision of Lloyds Banking Group (LBG) to target a top three position in the UK’s advice market through Schroders Personal Wealth (SPW), its joint-venture with Schroders, has a certain irony.
Until December 2013, LBG owned a significant portion of Cirencester-based St James’s Place, the current market leader, with around £143 billion of client assets under management at 30 June 2021.
This means that SPW will effectively be competing head-to-head with a former component of LBG.
It also raises the obvious question about whether or not LBG made what could yet turn out to be a particularly expensive strategic decision in cashing-out of a former wealth management subsidiary.
With the benefit of hindsight it looks as if LBG did.
Although it has been seeded with around £13 billion of assets owned by existing LBG wealth management clients, SPW is, to all intents and purposes, a new start-up.
And it will take considerable investment and time to build a business that has the potential to match SJP in terms of size and profitability.
As usual, however, the situation is not quite so straightforward.
The real issue that has to be determined is whether or not LBG made a better return on the money it realised from the sale of SJP than the return it would have received had it retained ownership.
This is not a straightforward exercise, not least because SJP was nowhere near the size it is now. And it is by no means certain that SJP would have grown at the same rate under LBG ownership, as it subsequently did as an independent entity.
Moreover, there were many potential demands on the capital released by the SJP, not least the necessity of repairing LBG’s balance sheet in the wake of the 2008 global financial crisis and especially the HBOS acquisition.
Furthermore, wealth management was hardly a strategic priority for LBG. Retail banking was a much more important priority.
SJP was always peripheral to LBG, which had its own wealth management propositions provided under the Scottish Widows umbrella and by Lloyds Private Bank.
Indeed it could be argued that SJP was always peripheral to HBOS, the Halifax and Bank of Scotland amalgam acquired by LBG in January 2009, which owned 60 percent of SJP’s equity.
There was never any attempt to integrate SJP into either HBOS or LBG.
To all intents and purposes it seemed to operate as a quasi-independent entity.
It was more like a financial investment rather than an integrated component of first HBOS and then LBG.
Back in 2013 it was probably a much more straightforward decision to let SJP go.
Nonetheless, there is one very intriguing facet associated with LBG’s ownership of SJP.
The Cirencester-based firm grew faster while under LBG’s ownership than it did subsequently as an independent entity.
Between January 2009 and December 2013 SJP’s client assets grew from £16.3 billion to £44.3 billion, a compound annual growth rate of 22.14 percent.
Between December 2013 and December 2020 SJP’s client assets grew from £44.3 billion to £129.3 billion, a compound annual growth rate of 16.54 percent.
