By Simon Jessop and Sinead Cruise

LONDON (Reuters) - Wealth manager Rathbone Brothers (L:RAT) has agreed to buy its biggest independent rival in Scotland, Speirs & Jeffrey, boosting its assets by almost a fifth to 44.5 billion pounds.

Rathbone said on Thursday that it will pay 104 million pounds in cash and shares, from a new share issue, for Glasgow-based Speirs' 6.7 billion pounds in assets, with further shares to be paid out if earnings targets are met.

Rathbone has played a lead role in industry consolidation, as rising regulatory and other costs push smaller fund managers to join forces, and as the firm looks to increase the amount of money it invests directly on behalf of clients.

As part of that strategy, it discussed merging with peer Smith & Williamson last year, but the deal was eventually ditched.

Speirs was established more than 100 years ago and employs 38 investment professionals servicing more than 8,500 clients. After the takeover the two firms will combine their Glasgow offices, making it the group's biggest office after London.

As well as sharing costs, the deal will also give Speirs' clients access to a broader range of products and services, including ethical investments.

"From the outset of our engagement, both teams have recognised how compatible they are in culture, investment philosophy and dedication to client service," Rathbone Chief Executive Philip Howell said.

"Speirs & Jeffrey represents an ideal strategic, professional and geographic fit with Rathbones and we look forward to working together both to develop our business in Scotland and deliver compelling returns for our shareholders."

At 0802 GMT, shares in Rathbone were down 0.2 percent, broadly in line with the FTSE mid-cap index (FTMC).

Rathbone said it plans to pay an initial 79 million pounds in cash, funded from a combination of internal cash and the proceeds of a 60 million pounds equity placing, which amounts to 5 percent of Rathbone's existing share capital, announced separately on Thursday.

The rest of the initial payment will be in shares, through the issue of 1 million new Rathbone shares worth 25 million pounds. Payouts linked to earnings targets could see up to a further 5.8 million shares paid out, it said.

The deal is expected to be marginally accretive to earnings per share in the first full year following completion, and will boost EPS by 8 percent in the third full year with a return on investment of 13 percent by then, Rathbone said.