Well, now. This has been a tricky one. Standard Life Aberdeen’s disposal of its life business to Phoenix, king of the zombie insurers, took me by surprise and to be honest I’m still working out what I think about it and what the consequences will be (of the disposal, not of me thinking; usually the consequences of me thinking are nothing at all). But some of you have been nice enough to ask what the lang cat view is, and quite a few of you have been in touch privately to ask if we think you should be immediately reviewing your platform choice. I’ll cover all of this in what is a longer post than usual.
If you don’t want to read all this (it’ll take you about 10 minutes), then here’s a TL:DR summary:
- It’s way too early to say what the impacts of admin split across SL and Phoenix will be
- It’ll be worrying for staff
- Lots of advisers are worried about SL’s strategic direction
- When it comes to platform choice, client suitability still rules the roost. Advisers shouldn’t cut and run.
- SL might damage its own market position even if it makes a go of this
- This is the culmination of a strategic journey of a decade or more.
WHAT’S SPECIAL ABOUT THIS DEAL, THEN?
Provider ditches legacy insured book; who gives a toss? Normally when we hear of legacy book disposals we all nod sagely and add that load of policy classes to the ‘first priority of attack’ for advisers and competitors. But this is Standard Life, the very model of a modern life insurer. It’s so modern it doesn’t even do life insurance.
What it does do is administer group pensions, individual personal pensions and basic SIPPs pretty damn well, and it’s this stuff that moves over along with the older insured book. That makes it a fairly unusual deal in a sector which is all about hoovering up manky old MIPs, RAPs and all the rest.
The other different thing is that this isn’t just a closed book deal. The workplace and retail SIPP books are strong new business generators, even if the products are starting to look a little bit aged. So we have to ask, is Phoenix getting into the open book game? Will we see Phoenix BDMs running around trying to win group schemes?
Nope. Assuming the deal goes ahead as planned, SL becomes a 20% shareholder in Phoenix. The Lothian Roaders have been keen to assure everyone that it’ll be business as usual (for example, in this deeply uncomfortable corporate video). Service won’t be affected, you’ll speak to the same folk on the phone, they’ll still say, good morning, Standard Life, how can I help you?, you’ll still get adviser support and all that. (That’s what I’d say, too.)
The idea is that you get Standard Life on the surface, and Phoenix underneath, and no-one is any the wiser. That sounds simple, but of course life’s not like that. I’m expecting to see a raft of cross-border agreements that will give the Brexit negotiating team a useful playbook for the next year or so.
WE’RE ALL DOOMED, DOOMED I TELL YE!
The reflexive, cheap reaction is that service is naturally going to go to pot. There are reasons why that might well happen. I suspect SLAC staff who I imagine will be TUPE’d over to Phoenix may well be feeling a little unloved just now, congratulations on working in the part of the business the company doesn’t want any more, and Edinburgh remains not a bad place to ply your trade if you’re any good at your job in this sector. Aegon and Pru (rumoured to be opening a big Embra centre) may do very well out of this. If a talent drain happens, that’ll have an impact. Our tiny business has already had a steady trickle of SL folk wondering if we have jobs going (we might do, by the way).
But equally, we’ve heard that some advisers who have AXA Wealth business that’s headed over to Phoenix have been happy with the service they’ve been given. Not gushy excited, but not stick-sharp-objects-in-your-eyeballs frustrated either. And for a company with one of the worst service reputations in the game, that’s a big step. Maybe Phoenix will be able to deliver a good experience to SL clients, employers, trustees and advisers. There’s no way of knowing just yet.
However you feel about SL, and I remember feeling both the adviser love and the adviser hate when I worked there before starting up the lang cat, most of you will acknowledge that it gets the basics right more often than any of its competitors. The key question, then, is whether Phoenix can deliver service that goes beyond tolerable and fulfils the brand promise of Standard Life, especially since that will still be the name above the door.
That’s going to be a new experience for Phoenix. It knows how to run closed books at a very, very low cost, and how to squeeze fund managers. Those are its two main levers of profit from its books. No part of that is to provide service that is above and beyond the expectations of advisers.
WHAT LIES BENEATH
They say that when you’re a hammer, the world looks like a nail. When you’re an asset manager, the world looks like pools of asset you can pick up. And it’s hard not to think that that’s what’s happening here. If Aberdeen Standard Investments (ASI) can grab a shedload more Phoenix assets and maybe recover some of that £109bn going out the door to Lloyds, then that’s a job well done.
This, then, completes the transition of SL into what Sandy Crombie used to call an ‘asset-gathering’ business, this isn’t a new strategic direction at all. Big chunks of asset good; icky policy administration and, good afternoon, how can I help you? bad. (side note: when I worked at SL there were two cardinal brand sins: firstly, don’t call the Gherkin the Gherkin; it’s St Mary Axe, and secondly, don’t refer to SL as a lifeco if you want to hang onto your job. I failed in all those regards).
So fine. SL now becomes an asset manager with bits attached rather than a big provider in the traditional sense. That makes some sense, concentrating on capital-light business and reducing / removing Solvency II issues.
But let’s play that tape through to the end. What makes SL hang onto its platforms (SL Wrap, Elevate and Parmenion) and 1825? Is it a love of wrangling three platforms, two different lots of FNZ-powered technology and of owning adviser firms? I could be wrong, but I hae ma doots, as pretty much nobody says up here.
If you follow that world-looks-like-a-nail line of argument, those businesses are attractive because they offer a way of directing assets into ASI investments. That makes perfect sense, control the pipes and control the inputs and you control what comes out the other end. That’s the vertical integration zeitgeist all over, you’ll see exactly the same strategic rationale in lots of other places including Bristol and Southampton.
Let’s put it another way. Will Messrs Skeoch and Gilbert be rewarded handsomely for another £30bn of assets going into Vanguard, M&G, Schroders, Fundsmith, Lindsell Train and OMGI funds? Assets on which Standard can only clip the ticket to a relatively small (in terms of profit) extent? Will they be rewarded for building an advice business with all the concomitant risks and hassles? Or will they be rewarded for turning ASI into an asset management behemoth?
You don’t need much from me here. Abraham at Finalytiq has done a good job of pointing out that SL Wrap will be using products which are administered by Phoenix; you should head over to his blog and have a read. The TL;DR is that your bonds and pensions if you’re a Wrap supporter will now be Phoenix under the hood.
I kind of struggle to care about this, to be honest. It’s weird, but then I joined Wrap back in 2007 which was too late for the launch but just in time for the world of hurt that was ‘SIPP shadowing’. For those of you not wincing right now, this was a situation where the FNZ system mirrored, or didn’t SL’s own pensions system, which was where the admin actually took place. Wrap was always a mix of in-house and external stuff, and in the early days that went exactly as well as you’d expect. Thankfully everyone’s come a long way since then.
But the concept of Wrap being a mix of different bits from different places isn’t one that feels unfamiliar, certainly if you work there. I guess the x-factor in this is that Standard’s platform servicing teams work incredibly hard to make sure that advisers and clients don’t see any of the joins. I’m not saying that SL always manages that, but again I’d say it gives it a fair crack on at least three days out of five.
On a practical level, then, I sort of buy the argument that nothing should change. And that word ‘should’ is important. SL and Phoenix both have a yuge amount of work on their hands to design the new operating model. The bet isn’t whether they have the righteous intent to provide a good experience; it’s whether they can execute. I’ve seen SL pull off some remarkable stuff over the years, but this will be a corker if they can do it.
And that’s also a clue as to what advisers might do at this stage. There are no certainties, the deal hasn’t even been approved yet. If you considered that SL Wrap, Elevate or Parmenion was the most suitable option for your clients before this all broke, then it still is until something changes. Even if you’re allergic to Phoenix and from what we’ve heard from advisers since the announcement, many of you are, then you still don’t have a concrete reason to move. Again, they might surprise you.
A watching brief is reasonable. One firm I spoke to is writing to its Wrap clients to say that a) it didn’t know this was happening and found out the same way as everyone else did (we’ll come back to that) and that b) it has some concerns, but c) it doesn’t think any changes are warranted yet as we don’t know how it’ll all shake out. That sounds like a decent balance to me.
I certainly don’t think the announcement itself should trigger a due diligence review. Again, it’s too early. In our DD work, we assess the facts as we know them, and in this case we’d have to say ‘we don’t know anything, wait and see’.
WHAT LIES BENEATH, BENEATH
But there’s more going on here. SL has and I’m trying to be as balanced here as I possibly can be ‘mishandled communication to advisers. I’ve personally had a torrent of Mr Angry notes from normally rational advisers about lack of communication, mixed messages, staff not knowing what’s happening and a general Clampetts feel about the whole thing. I have no idea about what SL has said to clients, so can’t judge that.
Communication bad feeling will pass soon enough. I can’t care too much about that.
But there is a cohort of SL supporters out there who are feeling very bruised indeed, and this may well be the final straw. I’ll paraphrase and combine a couple of notes detailing concerns I’ve had from advisers who I know well and respect very much, and I’ll do it in bullet form:
- SL has strayed too far from its adviser origins and is just becoming an asset manager
- It’s looking weakened without the back book to give it backbone; big outflows from GARS, the Lloyds stuff, and now this mean that it is starting to get borderline on our sniff test
- The clashes with 1825 are getting more real; 1825 has tried to recruit staff from us and other SL-supporting IFAs
- Why would we put business into a firm which has a stated intention to build a business which is in direct competition with us?
- We’ve decided not to be part of 1825 and have seen our experience with SL leadership in terms of relationship over and above day-to-day service suffer as a result.
And so on. These aren’t my ‘kvetches’ they’re real concerns from real firms. There may well be good answers to them all; SL owes those to the adviser community, not to us.
Put it this way. Admin uncertainty plus strategic divergence plus channel clash is a dangerous brew.
Back to hammers and nails. It may well be that the Venn diagram of advisers who are concerned about this kind of thing and advisers who allocate significant monies to ASI funds doesn’t overlap all that much, and so it’s not that big a deal.
But if we see a run on the back book from pissed-off advisers, and then a run on the new book from advisers heading across the street for a lower-cost platform somewhere else, then that’s another thing. A lot of ifs in there, and as my Dad says, if your auntie had balls, she’d be your uncle’. But it bears watching and thinking about.
I can’t claim credit for this. But someone mentioned it to me and it’s too good not to include. Again I’ll paraphrase and present it in bullet form.
- SL Wrap is still pretty much the most expensive platform in the market
- The sell is premium price gets you premium product and premium service, fair enough.
- If Phoenix makes a mess of admin, then that’s obviously a stinker.
- But if it does well, doesn’t that prove that the UK’s biggest admin bucket-shop can do the admin just as well as the well-treated, Starbucks-franchise-enjoying denizens of Dundas House and Lothian Road?
- And if that’s the case, what’s the premium for?
Damned if you do and damned if you don’t.
A LAST WORD
I’ve held off writing this for a week or so. Partly that’s because I’ve been working through it in my head, but also partly because a huge change like this goes well beyond practical impacts and into less tangible areas.
I think, overall, it’s a bit of a sad story. It might be the right thing for the SL shareholders; we won’t know for a long time. SL/Aberdeen may well go on to build awesome stuff and reassert itself as a genuine market leader for independent advisers. The admin might be awesome.
But any Embra boy or girl will tell you that one of the constants in life is that SL will be sat there, with all its good points and all its faults, doing what it does while the world goes crazy around it. I suspect jobs will go ‘otherwise Phoenix doesn’t have a model’ and after an appropriate bedding in time I think life will change very dramatically for staff inside the lifeco.
You might not think that’s something you care about, but you do, and that’s because one of the reasons you’ve had, on balance, a good experience with SL is because the staff decided that they wanted to provide that for you. The same staff, sitting at the same desks, with different conditions and a different daily work environment, can provide a completely different experience.
So this is a big change for Edinburgh, and for SL’s people, and I couldn’t write this piece without making that point.
SORRY FOR BANGING ON
Enough. Time to stop. This deal is fascinating, and it’s only just beginning. Expect a year of shifting sands about how it all works; don’t place too much stock in anything anyone tells you ‘including me’ just yet.
Thanks for reading.