This week marks the first anniversary of Aegon’s acquisition of Cofunds. This is a good time to review the progress made over that time and what it all means for the largest platform in the market.
Since completing the deal in January, the Cofunds teams have been fully integrated into Aegon and substantial work has been done on transfer of its assets onto the Aegon technology platform. The retail assets should have moved to Aegon’s own technology by the end of Q1 2018.
At that point, an organisation which had suffered due to questions over its future and a general lack of investment should be fully embedded in its new home with a much clearer outlook.
So what next for Aegon, a company building a name and track record as a consolidator in both the platform and workplace markets?
When I met with him recently, Aegon chief executive Adrian Grace was quick to stress its long-term commitment to the platform market and that its strategy is now entirely focused around working with advisers.
“We are very bullish about the strategy we’ve got in terms of supporting advisers: not cutting across them, not going into vertical integration, not insisting on the asset management piece of pie. We want to give them a true open architecture experience with the best technology in the marketplace,” he says.
“We will never insist on advisers using our asset management capability. We will never do that because we believe advisers should have a choice. What we will do is use our buying power to give them the opportunity to use it.
“If they decide to use our asset management capability because we can negotiate a better price, great, good luck, you should use it. If you don’t want to and you just want to use the best technology in the market as an administration platform, that’s fine too.”
The downfall of D2C
On a subject important to many advisers, Grace concedes its previous direct-to-consumer strategy was not the right move.
“We all make mistakes. We built Retiready as a D2C tool but the reality was that the commercial model does not work for mass affluent in D2C. Look around the UK market at the failures of D2C – the power rests with the adviser because pensions and long-term savings are so sophisticated, the average consumer is still not prepared and will not be prepared for a long time to go and take those decisions themselves.
“Hargreaves has captured the sophisticated and high net worth, self-service market but the majority of mass affluent consumers are not yet ready to take these decisions alone.”
Shortly before the Cofunds deal was confirmed, Aegon also acquired BlackRock’s workplace pension assets and the underlying technology. This gave it presence in the master trust market, as well as some large and prestigious schemes, enabling it to operate across the full spectrum.
Overall, Aegon has over £160bn in assets. Cofunds amounts to £90bn of that, its own ARC platform around £18bn, approximately £15bn from the BlackRock acquisition and approaching £40bn from its own legacy books.
This clearer strategy is already causing firms who were looking to move away from Cofunds to revise their decisions.
“We have accounts who had given notice to Cofunds now reverse it. Nationwide is the biggest of those; you do not get any bigger endorsement than Nationwide. But there are a number of others I don’t have permission to talk about who have similarly reversed their decision because they see a very clear path as to what’s going to happen. The existing Aegon platform is also 100 per cent up in terms of sales volumes quarter on quarter,” says Grace.
He is emphatic that the strategic direction of the business is solid.
“We’re going to build the UK’s largest technology investment trading platform, and we’re doing that across multiple channels. We will continue to offload spread-based businesses like annuities. So this year, we will continue to look at value-added services we can add to the platform to give advisers the best experience.
“The days when you could be good at everything are gone. You have to decide what you want to be good at and you have to really focus on it. You have to get scale and then you need to look at alliances of people doing other things complementary to your model.”
So far, there has been little evidence of the much predicted consolidation within the platform market. By successfully swallowing the largest player in Cofunds, Aegon has demonstrated exemplary credentials for future transactions.
We have accounts who had given notice to Cofunds now reverse it.
In also acquiring both the BlackRock book and technology, it has lined up to play a similar role in the workplace market where even the regulator is actively promoting the need for consolidation.
Once the company finishes moving the Cofunds and BlackRock books entirely to its own systems, it would do well to build deeper integration with the various adviser software suppliers operating at the heart of so many advice firms. For now, though, platform migrations are the right focus.
The achievements of the last 12 months are in stark contrast to the uncertainty that had dogged Cofunds for so many years. While Aegon still needs to finish the job, these are all hugely positive signs for Cofunds users and probably far more than they would have expected this time last year.
The obvious question is: who will Aegon go after next?
Ian McKenna is director of the Finance & Technology Research Centre