Acquiring independent distributors may be the favoured business model of some bancassurers in the wa...
Acquiring independent distributors may be the favoured business model of some bancassurers in the wake of CP166, but increasing "engagement" by institutional investors keen to avoid threats to their capital may result in more focus on any such deals in future.
The latest quarterly Responsible Engagement Overlay (REO) report from Isis Asset Management – supported by PGGM, Friends Provident, Shropshire County Pension Fund, Royal & Sun Alliance and John Lewis Partnership Pension Trust Ltd. – does not specifically identify such acquisitions as falling under the scope of investigations into corporate behaviour.
Yet the report does identify an increasing propensity by institutional investors to query companies on a range of issues that they feel might constitute a move against their interests as shareholders and pose a threat to returns on equity (ROE).
These issues include corporate transparency, the environment, climate change, bio-diversity, labour standards, human rights, bribery and corruption, and corporate governance.
Engagement on these issues is not specifically about green credentials, says Isis director and head of corporate communications Jason Hollands.
"It is not only an issue regarding ethical funds, because, for example, tobacco companies also need to be transparent and have good corporate governance."
Earlier this year 38 institutions representing $3trn worth of investments backed calls for oil and mining companies to disclose payments made to governments in developing countries, where such payments are often siphoned off by corrupt officials.
The latest REO report says issues were raised with the following bancassurers: ABN Amro, Allianz, Banco Bilbao Viscaya Argentaria, Banco Popular Espanol, Banco Santander Central Hispano, Barclays, Citigroup, Credit Agricole, Credit Lyonnais, Credit Suisse, Deutsche Bank, HBOS, HSBC, ING, JPMorgan Chase, Morgan Stanley, Rabobank, Royal & Sun Alliance, Royal Bank of Scotland, UBS, West LB, and Westpac.
While some of these have no connections to the distribution of financial services products in the UK, others do have such links.
Closer links between distributors and manufacturers – as per the increasing number of 9.99% stakes being taken in IFA firms by providers – is therefore going to bring more IFAs under the spotlight of research into issues of importance to investors owning shares in bancassurers.
Quite what this will do to the values that providers are prepared to pay for stakes in IFA firms, or how strategies for meeting the changes wrought by CP166 may be altered is open to debate.
However, it is clear that more questions will be asked of such deals if they are deemed to go against shareholder interests.
More thorough due diligence applied by bancassurers when buying into IFA firms could also force distributors to start looking over their own operations more carefully.
This would ensure they meet increasingly stringent yardsticks on issues such as corporate governance and transparency – above and beyond legal minimum requirements.
With IFAs facing a period of increasing need for additional capital to fund big boosts in efficiencies required to stay in the industry (to deal with rising regulatory, insurance and other costs) those holding the money, i.e., investors, may start getting a lot tougher.
Paul Bruns and Elaine Parkes
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