Things are moving fast over at the newly merged Standard Life Aberdeen. The very first results for the combined company hit the wires this morning and, finally, a clear strategic direction is emerging.
Overall, there were net outflows. Not a great start, particularly given Scottish Widows’ parent Lloyds’ decision to pull its £109bn mandate earlier this month because it now sees itself as a rival to the merged entity.
The biggest news was Standard Life Aberdeen has sold its insurance arm to Phoenix.
It would border on conspiracy theory to suggest that Standard Life Aberdeen would unload its insurance arm just to win back a single mandate – even one in excess of £100bn – but it does take out a direct area of competition with Scottish Widows.
While Scottish Widows may now turn around and say that it no longer has an issue running funds through the firm because it’s no longer a competitor, it would make itself look rather flippant, and would incur an additional administrative burden to reverse the call so soon.
More likely, Standard Life Aberdeen – which has so proudly declared that the merger will create a world-leading “investment” company – is terrified others will follow suit and pull mandates.
Selling the insurance arm to Phoenix, in particular, allows Standard Life Aberdeen to have its cake and eat it; it makes money from the sale but also keeps a provider for which it already manages £48bn of assets, sweet. As Phoenix looks to eat up more back-book business, those assets have to go somewhere, and Standard Life Aberdeen would like to show off the vote of confidence should it win them.
Managers are judged on both performance and flows. While the two may occasionally correlate, the latter has as much to do about external perceptions as anything else. Asset breed more assets; Standard Life Aberdeen needs to build its reputation as a great manager, and fast. Because, right now, what springs to mind when you think about the investment side of the company? Probably the significant outflows from the Gars funds – a situation that was shown to have exacerbated this morning.
For years now, we’ve been pitched the benefits of vertical integration, owning as much of the value chain as possible, as the only way to make enough margin to survive and prosper. Yet pretty much no one has discussed how much time and effort is expended having to run each business separately – particularly when you’re already trying to coordinate a merger of historic proportions.
Given advised assets are still flooding to managers far faster than direct ones, the only game in town should be to find the easiest, cheapest, most effective route to that market. While market watchers have been bemused at Standard Life Aberdeen’s decision to run not just one, but three distinct platforms after the merger, its commitment to each individually, which was reaffirmed this morning, makes sense if you see them as adviser distribution strategies. Having as many touch points as possible, keeping loyal users of each happy, and avoiding the pain of replatforming all sound like positives in the end.
You may still think that Standard Life Aberdeen still has too many fingers in too many pies, even after the insurance arm sale. You may think it’s too vertically integrated, with too many conflicts of interest or unfair ways to find and retain clients. Saying that, part of the reason it owns platforms and an advice business is to have “greater proximity” to retail clients, which certainly doesn’t sound great for accusations that all it wants is funnels into its funds. That’s up to the FCA to decide. For now, Standard Life Aberdeen has doubled down that they are the right places to put its chips.
Justin Cash is editor of Money Marketing. You can follow him on Twitter @Justin_Cash_1