Scottish Widows Investment Partnership sale: what it means for your money

As Lloyds Banking Group sells Scottish Widows to Aberdeen Asset Management, we reveal what will happen to your money.

Lloyds Banking Group has sold asset manager Scottish Widows Investment Partnership (SWIP) to Aberdeen Asset Management.

The deal is for a total of up to £650 million, made up of £550 million in Aberdeen shares and up to £100 million more in cash, depending on SWIP's performance and growth over the next five years. This sale does not include Scottish Widows (the bank's life, pensions and investment business), which remains core to Lloyds.

The transaction is expected to complete by the end of March 2014 and, as part of this deal, the two parties have signed a long-term strategic asset management contract for Aberdeen to manage assets on behalf of Lloyds.

This is good news for Lloyds and also for British taxpayers, who own nearly a third of the bailed-out bank. However, will this disposal be positive or negative for millions of SWIP policyholders?

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What does it mean for SWIP policyholders?

As with all corporate mergers and acquisitions, both partners have trumpeted this as a win-win deal for their shareholders. However, this isn't as straightforward a success as first seems, because there are both positives and negatives for SWIP customers.

Corporate history teaches us that when companies take such large, transformational leaps of growth, it's usually their customers who suffer. Historically, big acquisitions create upheaval, primarily due to failures in management control, company integration and - most often - IT hiccups.

One plus for policyholders is that Aberdeen has great depth and breadth of expertise in managing a wide range of assets, including equities, fixed-income bonds, real estate, private equity and infrastructure. This transaction will give SWIP policyholders access to Aberdeen's greater expertise in money management, which is to be welcomed.

Also, the combination of SWIP with Aberdeen will create a larger, financially stronger group that is better positioned to compete for huge flows of global funds. This larger scale and scope could lead to lower fund fees in future for clients of the enlarged firm, though history and current trends suggest the reverse is more likely.

Of course, Aberdeen entered into this transaction to make money and, indeed, it confirmed that this deal is "expected to be materially enhancing to underlying earnings per share in first full financial year following completion". In other words, Aberdeen anticipates higher profits once this deal is done.

What's also sure to happen following this deal is that Aberdeen will aim to 'mine' its larger customer base by offering new Aberdeen-branded products to selected SWIP customers. The two partners intend to "establish a number of new business committees...to further develop the strategic asset management relationship...[and] jointly develop execution-only propositions for Retail".

In short, SWIP policyholders should be braced for cross-selling and up-selling campaigns from Aberdeen, offering them supplementary and different investment products across a range of asset classes. After all, why would Aberdeen buy such a large customer base unless it had concrete plans to make the most of it?

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IT could get messy

My main concern for SWIP policyholders is that they could suffer from impaired customer service as a result of the transition from SWIP's IT systems to Aberdeen's technology framework.

In the first 12 months following completion, Aberdeen aims to separate SWIP (which is largely a stand-alone operation) from Lloyds. The second step - integration with Aberdeen's global systems and operating model - may take up to two years from completion to be fully implemented.

For me, this is the biggest red flag for SWIP policyholders to be worried about. Large-scale IT projects on this scale rarely run smoothly, as demonstrated by repeated technology meltdowns at RBS and NatWest in 2012.

Aberdeen had this to say: "Robust plans are in place to manage the sale and transfer process. In the meantime, there is no change to the way SWIP manages its customers’ investments. SWIP remains focused on its aim of delivering outstanding performance and excellent service."

Another possible area of concern is that SWIP deals with its customers at arm's length, because it has no direct contact with end investors. Instead, it generates business through three main channels:

1. Internal: Lloyds Banking Group
2. External: Retail (through advisers, wealth managers and platforms)
3. External: Institutional (through investment consultants)

Therefore, if (or when) problems arise during SWIP's transfer to Aberdeen, you might find it difficult to get clear and accurate information on your asset holdings.

For these reasons, I would urge all SWIP customers to check their latest statements, either online or in their paper files. Establish clearly what assets you hold with SWIP now and will help to prevent hiccups further down the line, such as misplaced or mislaid policies and records.

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