With investors excited by the prospective improvement to its bottom line, Stanley’s shares leaped 17.7% to 315p as of 11:11am GMT, four hours after the company confirmed the deal on November 24.
In a statement, Stanley said it would “lower the ratio of compensation paid as a percentage of revenues, though the potential remains for investment managers to increase their total compensation subject to profit contribution”.
A spokesman declined to quantify the prospective pay cut, citing commercial sensitivities. But in its results statement for the half year to September, published on November 24, Stanley confirmed that revenues of £68.8 million scarcely covered expenses, including pay, of £65.3 million.
Revenues fell from £70.8 million in the six months to September 2015, due to lower commissions and interest on client cash balances. But expenses also fell from £67.4 million, following a 5.4% fall in headcount to 898 and a cut in variable compensation.
This resulted in pre-tax profits of £3.6 million, against £2 million in the six months to September 2015.
But Stanley’s operating margin remained low at 6.5%, against an asset management average of 35% calculated by the Financial Conduct Authority.
Chief executive Paul Abberley, interim chief executive of Aviva Investors prior to 2014, said in a statement that his managers had been offered a new employee share plan to make up for “agreeing to enter into less attractive contractual terms”.
He has been negotiating the pay cut since June 2015. The terms have been accepted by managers looking after 90% of Stanley’s funds. In April last year, Abberley raised nearly £16 million from shareholders through a rights issue following a restructuring in a bid to take on sector leader Hargreaves Lansdown.
A remuneration consultant said: “Costs are increasingly eating into revenues in wealth and asset management due to poor performance, regulation and pay. I have not come across bonus cuts, which are really tough to negotiate, but I am seeing more redundancies, across the board.”
He said low-cost passive management had become increasingly popular.