Grace in favour
Taking Aegon from the old world to a strong position in the new is the top priority for Adrian Grace, Aegon UK’s chief executive. John Greenwood asks how he intends to do it
Adrian Grace, Aegon UK’s chief executive since March, is under no illusions that his company has to change if it is to succeed in the new world. And key to a successful transformation is, in the eyes of the straight-talking Yorkshireman, an injection of external talent.
“You could criticise Aegon in the past for being insular. The traditional way life insurers have done work in the past ain’t going to work.
Providers are going to have to be more fleet of foot, more reactive. That calls for more focus, greater decision-making. In the past there was not a lot of new talent coming in, but now we have got talent from all corners,” says Grace, who points out that apart from Duncan Jarrett, sales director, who has 25 years with the Aegon, the rest of his senior management team have only been with the company for two years or less.
His newly-created insurance executive committee comprises Simon Skinner, chief operating officer who joined from Equitable Life, Jarrett and incoming UK group marketing director Paul McMahon, who has worked on platforms at both Axa and Friends Life. Chief risk officer Charles Garthwaite was formerly at Resolution while chief finance officer Clare Bousfield spent nine years at Swiss Re.
Last June the company announced a strategic review that will see costs cut by 25 per cent in the UK business, a restructure borne of necessity after its parent borrowed £3bn from the Dutch government in 2008. Before heading off to lead the Association of British Insurers, Grace’s predecessor, Otto Thoresen, had overseen many of the negatives in the restructure, including a series of redundancies that included high level figures such as Rachel Vahey, Francis McGee and Peter Williams, as well as managing the withdrawal from the group risk market in 2009. He has also had to live with various rumours about the UK business being sold off.
Now Grace is at the helm and the company is looking to move onto the front foot with its plan to target the at-retirement and workplace markets. Key to both sectors is its new deal with platform specialist Novia, unveiled a few weeks ago. The phased roll-out of the at-retirement platform, powered with technology from GBST, will start in Autumn 2011, with the workplace version coming to market in the second quarter of 2012 with McMahon.
Grace is comfortable with coming to the corporate wrap party later than some of his competitors, arguing that first movers can end up disadvantaged as much as advantaged.
“Not many life and pensions players have made any money in the corporate wrap space. In fact, let me think none have,” he says.
Leaving a Wakefield comprehensive at the age of 17, Grace’s understanding of business has been bottom up, only taking his MBA at Henley in his late 20s, and describing his time at GE as his most valuable training ground. Little surprise then that his approach is at once down to earth and focused on the bottom line.
“We think bringing the new world technology that Novia can offer us will help us re-engineer the business to be able to do exactly that. That is, to provide great value to intermediaries and consumers and at the same time to make sure we make some money,” says Grace, who is not convinced all his competitors will make a return on their big investments in platforms.
“We struggle with how the economics works for some of these offerings. A lot of people have said you are last to the market, but the reality is we are dealing with technology that works. And we have had the benefit of watching prices for these technologies drop significantly and still being able to prepare with 18 months to go before a post RDR world. So while some platforms are going to have to adjust for a post-RDR, world we are going to be able to build first time.”
Grace has not revealed how much the deal with Novia is worth, but it is clearly substantially less than some of the technology spends in the corporate market. He believes things need not be too complicated.
“You can over engineer these solutions. When you talk to the average employee, what they want are some fairly basic products and tools. We as a long-term saving specialist and pensions provider don’t offer Isas in the workplace. I understand why because the cost to serve that is difficult, but the platform capability makes it really easy.
“You then don’t need too much sophistication to be able to add on a whole series of other offerings and tools and guaranteed products and other bits and pieces before you have got a very compelling solution, which gives your average employee what they need to be able to secure their long-term future,” he says.
And Grace believes it is possible that the new corporate platform will be able to guide employees to achieving a sale through a basic advice process post-RDR.
Grace is keen to emphasise that Aegon is not white-labelling the Novia platform for its corporate wrap.
“Not many life and pensions players have made any money in the corporate wrap space. In fact, none have”
“Novia is building something for us that is very different. For the at-retirement space they are building a differentiated platform which specifically appeals to people who are thinking about retirement, consolidating pension schemes, decumulation, all the things you would expect in that space. But I am not going to go into the details of what is in that wrap platform because it is proprietary at this moment until we roll it out,” he says.
“But we are very competent in the area of guarantees, and in terms of helping people look at their retirement going forward, and we are bringing all of those skills together on one platform.”
The same platform will service both at-retirement and the workplace.
“We are not throwing mud at the wall anymore. We are targeting good business, but we are being selective”
“Clearly the tailoring for the workplace will be quite different and there will be bells and whistles. But the basic platform will service both.”
Beyond saying he wants his corporate platform to target SMEs with an off the shelf offering, that is about all Grace is prepared to reveal about what functionality the new platform will offer, which is hardly surprising given the length of time to launch, and the fact that McMahon has not joined yet.
“To me it is all about focus, differentiation and being really specific about what those SMEs up to 1,000 lives really want. I don’t see us doing a great amount of bespoking of it simply because I am not a huge fan of doing lots of bespoking. We aim to create something that is far more standardised but that appeals to a far broader employee base than some of the wealth platforms that exist today,” says Grace.
Aegon has long been characterised as one of the remaining three commission-paying life offices, together with Aviva and Scottish Widows. So will Grace be changing tack given the radical changes facing the industry?
“We are not throwing mud at the wall anymore. We are targeting good business, but we are being selective, which is part of our segmentation work that we carried out last year. But will we be moving on our current commission stance? Not that I am aware of.”
So how will Grace re-engineer the business away from commission for the RDR world?
“I do not want to get into pricing now as that would not be helpful, but we clearly have to adopt the new rules, and we have given commitments to the market in terms of increments,” he says. “These will absolutely continue to be paid.”
And does that commitment apply where there is a substantial change in the make-up of a scheme following auto-enrolment? Aviva said recently that it could change commission terms in the event that auto-enrolment ushered in a large number of new members on very different salaries than those currently in the scheme.
“People need help with their business models over the next two to three years, they don’t want providers pulling out of the market”
“We need to have a look at things in the round at the time. At this moment in time I have no plans to do anything other than what we do today, but clearly we will have a look at it in the build-up to RDR and the way the market is going.
So is Grace developing a corporate wrap because it is a must-have to preserve existing business?
“We are absolutely focusing on retaining the corporate pensions business. These schemes are not going anywhere because we think there is a long-term future in the market for some time to come. And we have long term obligations to that business.
“So we are absolutely not taking away the old world. But we are layering on top of that the wrap world which we think will give corporate advisers choice in what they take going forward. And people need help with their business models over the next two to three years, they don’t want providers pulling out of the market. They want help moving from a packaged product world to a more integrated world that will drive efficiencies, savings and drive a bigger share of wallet in the corporate workplace,” says Grace.
From 2013 Aegon will be competing in a fee-based world, so does Grace see much of the new business coming through consultancy charging?
“It is not in the plan at this moment in time for it to be much of a core for us going forward. We will continue doing what we have been doing for years as a successful Aegon business. We are layering the new platform business on top of that. I do not see us radically changing our approach other than what the RDR brings to us and forces upon us.”
Does Grace see others succeeding through consultancy charging? “Lets see how the market evolves. I would rather see which way the market goes and take a view in six to nine months time.
“The key is we have to run this like a business. It has got to be good value for consumers, advisers and us. I don’t want to rush into anything. I think when it comes to platforms we have made a good deal by waiting and watching and learning and then going to the heart of the issue and fixing it. And I will take the same approach with regard to consultancy charging.”
In one of his first media interviews after taking over the chief executive role Grace was quoted as saying he does not want to create a national consumer brand for Aegon, and that he sees Aegon sitting behind other people’s brands.
“Let me be absolutely clear, we are absolutely committed to the tennis. It was money well spent and has hit our target market well,” says Grace of the Aegon Championship sponsorship of the Queens Club tennis tournament. “My point is simple. When we said three or four years ago that we wanted to build a big UK brand, this was before the new strategy had been unveiled, which focused us far more on the workplace and the at-retirement sector. But we need to use every marketing dollar we have in the best way we can, and perhaps there are better ways to get to the workplace environment and the at-retirement space than creating a big UK brand.
“For us the adviser is the main channel to market and will continue to be so. So we can get better efficiencies by not spending the £30m a year we did when I was at Barclays, at end-users only, but by going down specific channels. And this is the bit that was not quoted in that media reports if we are creating a platform that is specific to at-retirement and workplace, wouldn’t you go and talk to those brands that are heavily involved in those sectors. So who talks to over 50s? You might go and talk to Saga, and say ’we have a fantastic platform that caters to people in your age group, do you want to have a look at it?’ Most of the banks have areas that focus on this kind of client look at HSBC.
“And to be frank, given the cost cuts we are making, the idea we can go and spend lots of money on a UK brand to compete with the other big name brands is not something we will be pursuing.”
What he is pursuing is the creation of a provider that can thrive in different times a goal advisers, who want as much diversity in the market place as possible, doubtless hope he achieves.
ALL ABOUT ADRIAN GRACE
2011: chief executive of Aegon UK
2010: chief operating officer - life and pensions
2009: joined Aegon UK as group business
2007: managing director, SME Banking, HBOS
2004: chief executive, Barclays Insurance
2001: managing director, small business division,
1994: vice president, global OEM relationships,
1991: national sales director, GE Capital
1984: branch manager, Mercantile Credit
1979: joined Leeds Permanent Building Society
Edinburgh. Married with three children
Supporting Leeds United and playing 5-a-side football