INVESTOR’S NOTEBOOK STEPHEN CRANSTON

It is equitable that all Old Mutual shareholders get the chance to hold OM Wealth shares

After the managed separation of Old Mutual (well, they wouldn’t market it as a messy divorce, would they?) the good news is that the UK business, Old Mutual Wealth (OMW) should still be listed in its own right on the JSE. It would be a sizeable counter, and the first large pure rand hedge wealth manager. Its closest onshore equivalent would be PSG Konsult, but it should command a much higher market cap, at least R50bn, and in some circumstances analysts believe it could have a higher market cap than Old Mutual Emerging Markets, the core Johannesburg-based business.

The scale of the OMW business is quite significant, with £110bn (R2,2 trillion) under management or advice and 3,300 advisers across all regions of the UK. I had the pleasure of talking at some length with Paul Feeney, head of Old Mutual Wealth UK, in my recent due diligence of the group. He has proved to be one of the few really good appointments in Old Mutual’s northern hemisphere businesses. I thought he might be in line for the group CE job, and once described the Manchester-born Feeney as the Mancunian candidate. But though he didn’t get the job, perhaps he has the last laugh. For long after current CE Bruce Hemphill packs his bags and circulates his CV to the headhunters at the end of 2018, Feeney will still be the main tenant at Millennium Bridge House in London. Feeney says it is only equitable that all Old Mutual shareholders get the opportunity to hold OMW shares when they are distributed as part of the demerger from the group, and there has been interest from SA institutions in the business. It has no immediate plans to drop the Old Mutual brand, in fact it is sponsoring the autumn rugby internationals in the UK, when the home nations play teams from the southern hemisphere. Of course somebody might still make a knockout offer to buy OMW but there is some reluctance as long as it is going through its very expensive (R4bn plus) IT “replatforming”. It will bring in systems that should be robust enough to last for the next 15-20 years. His intention, perhaps alluding to a former Standard Bank campaign, is to make the platform “safer, quicker, cheaper”. Feeney says that OMW could still grow on the current system, introduced in the early 1990s, for a couple more years. It was first bought by Skandia, more than a decade before it was acquired by Old Mutual, to introduce standalone unit trust-based products to challenge life-wrapped products. This was at the same time as linked product houses in SA such as UAL Investment Product Services and TMA made a similar challenge to life companies. By today’s standards their systems were laughably primitive, often little more than an Excel spreadsheet. I am sure the Skandia/OMW system was never as crude, but Feeney says it needs radical change as the retail finance world morphs from business-to-consumer into consumer-to-business. This doesn’t mean OMW is rushing into the roboadviser market. Clients can come direct but so far they are not doing so in huge volumes. After all, face-to-face advice is intrinsic to the OMW brand and even more so to its silver-service Quilter Cheviot unit. Quilter Cheviot has not lost significant business since it was taken over two years ago. Though it is no longer independent it is not forced to source its investment solutions from group funds. Feeney says the intention is to democratise financial planning, to give as far as practically possible the same product and service level for the £50,000 client (R1m) as the £5m client (R100m). They might not have the same level of direct interaction, but the asset allocation and stock process should be the same for both, he says. A solid process should help prevent the cannibalisation of the business by robo competitors.