The share scheme administration environment has remained relatively stable if not stagnant in terms of its market size. This is because the external conditions for promoting share schemes have not been particularly favourable in the past few years. The relative underperformance of equities from 1999 to date has not encourage companies to implement new plans. The FTSE 100 is still behind its peak nearly 14 years ago. However recent rises in share prices have encouraged companies to look again at share schemes.
In addition the mass market approved plans have not generally progressed beyond the larger companies because of the perceived administrative burdens. In addition whereas share schemes were seen as a free lunch for companies because they did not have to account for their costs, changes in accounting rules have meant that companies have to recognise the costs of share schemes in terms of shareholder dilution even if they do not physically cost cash.
All of these factors have contributed to a stagnation and share schemes. The advice market for share schemes is dominated by a number of share scheme lawyers and accountants. They tend to act as the gateway recommending administrators and trustees whom the client will use.
The administration market has seen a number of changes over the past three years. There has been a tendency towards consolidation in the share scheme administration and trustee market. The acquisition of HBOS share services by Computershare was the largest consolidation in the market for some time and reinforced Computershare’s position in the market. There has also been the downsizing of Accurate Equity formerly known as Norsk solutions. In addition Killik and Co have been bought by Equiniti.
It is unlikely that this will be the last major consolidation in the market. Every month there are rumours or actual offers for share scheme administrators as the survivors fight for a larger share of the cake that is remaining at the same size.
There’s also been some consolidation in trustee work. This is occasioned by the increase in the technical requirements being made by governments and financial services watchdogs on trustees holding shares. It is increasingly difficult for the smaller trustee to survive as a cost-effective unit because of the need to comply with ever-increasing amounts of legislation such as FATCA and the money-laundering regulations.
In Ireland the difficulty is being compounded by the substantial reduction in the tax advantages for share save plans as part of the austerity measures.
The remaining share scheme administrators divide into those who deal with the mass market of all employee plans. A global capacity and reach is crucial to their continued success. The other share scheme administrators concentrate on executive plans and look to make money from consultancy and transaction fees when trading is done.
It is therefore difficult to see where a small administrator based in one country and reliant on a relatively small home market can develop the business. The capacity for these operations in the share scheme market is becoming more limited. That is why the consolidation process which started shortly after the beginning of the financial crisis still has some way to proceed. One can anticipate the disappearance of further names from the share scheme administration and trust world in the short to medium term.
