The wealthier client base of Harpsden Wealth Management, and its expertise in areas such as paraplanning were key to the decision of WH Ireland to buy the firm, according to the latter’s head of wealth management, Stephen Ford.
The acquisition, which was announced yesterday (November 30), is WH Ireland’s first since it returned to profit this year, and is funded via a share placing, which was completed on the stock market yesterday.
Harpsden Wealth Management brings assets under management of £250m, and a further £140m of assets under influence via its discretionary fund management (DFM) business, to WH Ireland, but Mr Ford said the decision to buy the firm was “more strategic than simply picking up assets under management”.
He said the average client of WH Ireland had a portfolio of "£150,000-250,000 and above”, whereas the client base of Harpsden tends to have a larger pot of assets.
The fund research teams of the two firms will be combined, while Harpsden Wealth's paraplanners will join the combined business.
Mr Ford said: “The Harpsden Wealth client book is probably a higher quality than our client book. Over the past year we have been focused on turning around our business, and one of the questions we are still trying to work out is what do with the historic book of clients we have as we grow.”
WH Ireland is paying up to £7.8m for the business, but only if certain revenue targets are hit.
Mr Ford said: “We are not going to be a consolidator, but we are likely to do more acquisitions in future. With this one being the first one we have done since we returned to profit, we wanted to make sure that it was digestible.
"Both businesses are DFMs and advice firms, so it is a natural fit in that way. We think our shares are undervalued right now, so another reason not to do too large a deal was that we would have paid for it in shares, and we don’t want to do too big a deal and end up diluting our existing shareholders too much.”
The expectation is that costs of £600,000 can be saved from combining the businesses, and due to WH Ireland’s history of recent losses, these gains are tax free as they can be set against previous years' losses. Harpsden Wealth Management made a profit of £710,000 in its most recent set of accounts, from a turnover of £2.9m.
Mr Ford said he doesn’t expect, at an industry wide level, advice firm margins to fall, but that it may be a different story in the discretionary fund management space.
Mr Ford said: “Some of the DFM businesses out there are basically relying on the kindness of strangers to survive, they rely on advisers to basically be the distributors of their products.
"And in that part of the market I think margins are going to fall, but that is not what we want to do. We want to work with the end client directly, and I think that is where [margins] can be maintained.”