It is a well known fact that most corporate deals fail to deliver the benefits promised for them – not that this stops City professionals from charging handsomely for the advice that creates them. But while City firms can wreak havoc on their clients, this is nothing to the mess they can create in their own backyard.
When not running around trying to persuade their clients to embark upon some bold strategic endeavour, they are eyeing up each other like teenagers on the dance floor. The City never stands still. The names that I knew when I was a dealer on the trading floor of the old London Stock Exchange in the early 1980s – Smith New Court, Wedd Durlacher, Fielding Newson Smith to name but three – have long since disappeared from the Square Mile’s directory and many more have followed them into obscurity.
Big banks, small banks, brokers and dealers, lawyers, accountants and PR advisors – never do they seem happy to simply stay as they are. The search for economies of scale or perhaps the need to lean upon each other for mutual support makes the City more promiscuous than an evening of speed-dating.
The benefits of these constant changes of ownership are debatable to say the least, But few City constructs have fallen with such a thump as Syndicate Asset Management (LSE: SAM).
How the recession nearly crushed Syndicate
Created in 2005 the premise was simple. The City was full of small fund management groups each of which really wanted to get on with the job of attracting clients and managing their money. But they all also had to cope with all those tedious but necessary functions like finance, human resources and compliance. Why not bring a number of these small players together, and allow them to share one big back-office?
That was the business plan and all went well to start with, but the financial crisis of 2008 almost sank Syndicate Asset Management. Its activities attracted the attention of the Financial Services Authority. It was on the hook to make further payments to those from whom it had bought various businesses. And when the Royal Bank of Scotland called in a loan of £9m, this could have been the end of the story.
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But in spite of having seen Syndicate’s share price lose 99% of its value, City investors stumped up £17m for an issue of new shares at 1.5p in November 2009 and kept it afloat. New management took over, the old guard were shown the door, and Syndicate has embarked upon what it hopes will be the recovery trail.
An IFA clearout could transform Syndicate
Syndicate’s new chief executive is Jonathan Freeman and when I spoke to him recently he sounded in jaunty mood. Part of this was due to recent trading. Syndicate has returned to profitability. The integration of back-office functions that should have been done years ago has now finally been completed. And clients who have had plenty of reasons to desert have still entrusted £5.8bn to Syndicate’s tender care.
But an important reason also for Freeman’s optimism is the forthcoming change to the regulation of Independent Financial Advisors. This much vilified species has been routinely accused of recommending financial savings products that line its own pockets irrespective of their suitability for clients, and now they are to be forced to raise their game.
This is the intention of the government’s Retail Distribution Review, which requires Independent Financial Advisers to have far higher standards of training and qualification. Faced with the prospect of swotting up for exams the over-fifties may simply choose to head off to early retirement, while small IFA partnerships may struggle to offer the necessary standard of advice.
So Freeman believes that there will be a thinning out of the ranks of IFAs and a concentration of the industry into the hands of larger players. He also believes that, thanks to the appalling complexity of pensions and other financial products, it is becoming impossible for anyone with any meaningful income or savings to manage their affairs without advice.
Both of these factors, he argues, should play into the hands of Syndicate’s Ashcourt Rowan subsidiary which, with seventeen offices, is one of the country’s largest dispensaries of financial advice.
So the shares could be on the turn. Brokers are forecasting that Syndicate will make earnings per share of 0.15p this year and 0.21p the following year making the shares, at today’s price of 1.3p, a possible recovery play. For that to come true, though, Syndicate will have to manage its affairs a great deal better than it has in the past.
• This article was first published on the 26th August in Tom Bulford’s twice-weekly small-cap investment email
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