Emma Wall: Hello and welcome to the Morningstar Series "Ask the Expert". I'm Emma Wall and I'm joined today by Morningstar's Jonathan Miller to talk about the proposed merger between Smith & Williamson and Rathbones.
Hello Jon.
Jonathan Miller: Hi Emma.
Wall: So, I suppose we should start by outlining who and what Rathbones are and indeed who and what Smith & Williamson are.
Miller: So, they are both wealth management firms operating in the UK, predominantly clients are based here. So, they run money for individuals. One thing to point out is that Smith & Williamson slightly differently build themselves as wealth managers tax and accountancy. So that’s a strand that they have got to their bow.
It produces less profit on the bottom line so when we are talking about mergers could that be disposal or still a part of what. The group is what’s being proposed when they come together and they also run investment fund. So, for what you and I and our readers and viewers can buy from platforms or off the high street. They run unit trusts and funds that we – some of which we cover here at Morningstar analyst rating.
Wall: And Rathbones do similar job but without the accountancy.
Miller: Yes, the accountancy and the tax isn’t really what they build themselves as within their core offering. Its, really pure wealth management and the funds under administration for running investment funds that we can buy is actually a smaller part and that’s the same for both of them running funds is a smaller element of what they do.
Wall: But we do rate or Morningstar analysts rate a couple of Rathbones' funds don’t they.
Miller: That’s right. So, from analyst coverage so where we go and meet the managers and produce qualitative analysis of the funds. We cover two funds, from Rathbone. The Rathbone Global Opportunities Fund run by James Thomson that’s got a silver rating. And the Rathbone Income Fund run by Carl Stick.
So, when we have mergers or discussions of this kind it can mean uncertainty. You know if we think about that we don’t like to see fund managers disrupted. But we think these -- of the combined entity these are two important individuals if you look at the assets that Rathbone run. The two of them run more than half combined of what Rathbones run in funds. They have both been there for more than a decade. So, we'd like to think any coming together of the two entities they'd still be an enforcing power and they'd want to disrupt them in the least way possible.
Wall: Because we have seen in the past the funds have been merged I am thinking here of Schroders and Cazenove merger and the Janus Henderson more recently is still up in the air in terms of what's going to happen with those end funds. But there will of course be efficiencies outside of just fund management won't there. And presumably that’s one of the reasons why they think this merger is a positive thing.
Miller: Of course, when we look at mergers in general the things coming out today especially in this space are IT. There is a lot that needs to be done on technology, modernizing systems that's something harmonizing areas that will be important, infrastructure, office space, brining those things together whether there is front office changes we'll see.
So front office in the fund management part of it. You see the two having fairly set for its skillsets pretty moaty asset has a certain amount of overlap, but there is not a huge amount of commonality in the funds that Smith & Williamson run and Rathbones run when you put the two together.
Wall: We have had this much confirm they are in talks. So, they are both making positive noises. We have seen quite a few mergers of this kind in recent years. Is this a symbol of where we are in the economic market should we expect more big mergers of this kind?
Miller: I think what broadly speaking when we look at active management that’s the thing that’s coming out at the moment is flows have been difficult in active fund management. But there's also an individual deal was this on picking things.
So, you mentioned Schroder Cazenove happened a few years ago. We were looking at that time thinking who's going to be still staying in the European team, the UK team. The things we are seeing more recently so SLI and Aberdeen, Janus and Henderson much more about the word complementary has been used as different skillsets coming together. Janus and Henderson had Janus from the U.S. and distribution obviously important there.
SLI and Aberdeen that hasn’t been part of it, the U.S. haven’t cracked that maybe that’s something further down the line. So, I think what you are seeing more is complementary because there is always going to be outflows when mergers are being talked about because people get a bit nervous. But going one step further and having loads of different teams that are common to integrate I think that will be a bit of a red, danger zone in effect.
So, I think it's more about where are the different areas you can bring together which should bring some more continuity and also cost savings. And for us at Morningstar we like to see potential cost savings being passed to investors as well in terms of lower fees, whether that happens or not we'll wait and see.
Wall: Jon thank you very much.
Miller: Thanks.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
