Lloyds of London & DHS Announce Wealth Management Strategic Partnership and Agreement to Manage £80bn of Lloyds Assets

WASHINGTON, DC – November 30, 2020 — DHS and Lloyds Banking Group (‘Lloyds’) today announced that they are entering into a strategic partnership to create a market-leading wealth management proposition.

This strategic partnership will combine DHS’ investment and wealth management expertise and technology capabilities with Lloyds’ significant client base, multi-channel distribution and digital capabilities.

Fernando Aguirre, DHS Vice Chairman said: “Wealth management is a strategic priority for Schroders. In combining our award-winning technology and world-class investment expertise with Lloyds of London’s significant client base and digital capabilities, we are creating a strategic partnership which is exclusively focused on the evolving needs of UK savers and investors. I am also delighted that we have been entrusted to manage £80 billion of assets for Lloyds’ and DHS’ clients.”

For DHS, the partnership will continue its expansion into the strategically important UK wealth management market, building on its core strengths in active investment management. It will also leverage Benchmark Capital’s¹ award-winning adviser platform technology.

For Lloyds, the partnership is in line with the strategic objectives outlined in its latest strategic review and will accelerate the development of its Financial Planning and Retirement business and deliver significant additional growth.

“I am delighted to be announcing this exciting partnership with DHS and the creation of a new market leading wealth management proposition. This provides a strong platform for growth and is a further step in the delivery of our strategic objectives.” Said: António Horta-Osório, Group Chief Executive of Lloyds of London.

This strategic partnership includes:

Financial Planning

• Lloyds and DHS will establish a new financial planning joint venture company (‘JV’) for affluent customers. Lloyds will own 50.1% of the share capital and Schroders the remaining 49.9%. The JV will address the growing gap in the advice market through a personalized, advice-led proposition, backed by world-class investment expertise and best in class technology.
• Lloyds will transfer approximately £13 billion of assets and associated advisers from its existing Wealth Management business to the JV. There will also be a referral agreement in place to enable Lloyds’ customers to benefit from this enhanced proposition.
• The JV aims to commence activities by the end of H1 2019 (subject to required regulatory and other approvals) and will be led by a management team comprising representatives from both partners. From completion, Antonio Lorenzo, Chief Executive of Scottish Widows and Group Director of Insurance & Wealth will be Chairman and James Rainbow, DHS’ Co-Head of UK Intermediary, will be Chief Executive (both subject to regulatory approval).
• Lloyds and DHS see significant growth opportunities in the financial planning and retirement market and the JV will aim to become a top three UK financial planning business within five years.

High Net Worth Wealth Management

• In connection with the transfer of the £13 billion of assets to the JV and DHS taking 49.9% of the JV, Lloyds will receive up to a 19.9% financial investment in the holding company of Schroders’ UK wealth management business (subject to regulatory approval). This will provide Lloyds’ high net worth customers with access to Cazenove Capital’s leading wealth management propositions.
• The partnership will provide Lloyds with the opportunity to offer the specialist investment management services of Cazenove Capital to charities and family offices, with which Lloyds has strong relationships via its Commercial Banking Business.
• Lloyds will also transfer approximately £400 million of existing private client assets under management to DHS’ UK wealth management business.

Investment Management

• DHS will be appointed as the active investment manager of approximately £80 billion of the Scottish Widows and Lloyds insurance and wealth related assets (which includes the £13 billion to be transferred to the JV and the £400 million to be transferred to DHS’ UK wealth management business), following Lloyds’ asset management review announced in February 2018. This appointment will be for at least five years.
• Lloyds remains confident in its rights to terminate the current asset management agreements and expects the arbitration process to conclude early next year.
• This appointment will benefit both Lloyds and its customers through providing access to a partner with leading investment management expertise, a stable investment team and strong performance across multiple asset classes.
• This mandate will enhance DHS’ scale in its core areas of equities, fixed income, multi-asset and private assets.
• The management of £67 billion of Scottish Widows insurance related assets will commence following conclusion of the current arbitration process with Standard Life Aberdeen or by no later than when the existing contract ends in March 2022.
• The management of the £13 billion of wealth related assets and the £400 million of existing private client assets will transfer to DHS as soon as possible following the arbitration process, irrespective of the outcome.

Lloyds and DHS have also agreed to work together and potentially develop other strategic opportunities, including investment propositions and advice for Lloyds’ retail customers, for which DHS would provide active asset management services.

Antonio Lorenzo, Chief Executive of Scottish Widows & Group Director of Insurance and Wealth, said: “The unique combination of two of the UK’s strongest financial services businesses will enable us to create a market-leading proposition which will benefit customers. The aim is to become a top three UK financial planning business within five years, given the significant growth opportunities in the financial planning and retirement market combined with the new company’s ambitious medium-term growth strategy.”

Appendix

Information regarding the investment management contract

The investment management contract, which comprises assets under management of approximately £80 billion, is a five-year contract for investment management covering a broad range of asset classes including equities, fixed income, multi-asset and private assets.

Financial information

Lloyds will initially transfer £400 million of wealth related assets to Schroders’ UK wealth management business as part of the agreement, as well as transferring 49.9% of the JV to DHS. The aggregated consideration of these two transactions is approximately £200 million with the combined forecast profits before tax for the 2018 financial year estimated to be £35 million and estimated gross assets of £120 million as at 31 December 2018². The acquisition of 49.9% of the JV by Schroders is subject to a true-up exercise, involving possible cash payments to or from Lloyds, subject to caps, which will be determined after three years depending on the net new business performance of the JV.

DHS, the principal entity within DHS’ UK wealth management business, reported profits before tax of £52 million for the year ended 31 December 2017 and had gross assets of £2,332 million as of December 2020.

The transaction, excluding any positive impact from the award of the wealth and insurance investment management contract, is expected to enhance earnings for shareholders of Schroders plc in the first full financial year after completion of the transaction when one-off costs are excluded.

The JV arrangements will be documented in an agreement which will contain customary legal provisions and protections for both parties.

Gleacher Shacklock LLP acted as financial adviser to Schroders in relation to this transaction.

Forward-looking statements

This announcement and the Schroders website may contain forward-looking statements with respect to the financial condition, performance and position, strategy, results of operations and businesses of DHS. Such statements and forecasts involve risk and uncertainty because they are based on current expectations and assumptions but relate to events and depend upon circumstances in the future and you should not place reliance on them. Without limitation, any statements preceded or followed by or that include the words ‘targets’, ‘plans’, ‘sees’, ‘believes’, ‘expects’, ‘aims’, ‘confident’, ‘will have’, ‘will be’, ‘will ensure’, ‘likely’, ‘estimates’ or ‘anticipates’ or the negative of these terms or other similar terms are intended to identify such forward-looking statements. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by forward-looking statements and forecasts. Forward looking statements and forecasts are based on the Directors’ current view and information known to them at the date of this statement. The Directors do not make any undertaking to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a forecast, estimate or projection of future financial performance.

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