Nearly a third of the advice market will be impacted by the news that fund manager Invesco has bought adviser back-office provider Intelliflo.
The acquisition sees Intelliflo move away from its private equity owner HgCapital, which has backed it since 2013.
While both Intelliflo and Invesco have been quick to reassure advisers the new arrangement will benefit them, with greater investment and a continued commitment to its open architecture technology, questions remain over the direction in which Invesco will take Intelliflo.
Here, we speak to Intelliflo, Invesco and market experts to dig a bit deeper into the deal.
Where’s the margin?
Invesco paid around £200m for Intelliflo, Money Marketing understands.
According to Intelliflo’s 2016 results, the most recent to be filed to Companies House, the technology provider at that time had nearly 15,000 licenced users, which had increased by 9 per cent from the year before. Indeed, data from Platforum’s January report Adviser Market: Fintech and Digital shows Intelliflo is the back-office provider to 29 per cent of advisers.
The Companies House results statement says that at the end of 2016, Intelliflo’s advisers managed around eight million customers who had an estimated £275bn in assets under management.
While recurring revenue and operating profit in the “operating business” grew in 2016, overall, the group made a loss of £4.6m (compared with £3m in 2015), which it put down to the costs of financing loans to advisers.
After the Invesco acquisition was announced, Intelliflo was clear the deal would result in further investment in its technology, saying Invesco was an attractive suitor because of its global footprint and understanding of technology.
Intelliflo executive chairman Nick Eatock says investment from the fund manager will allow it to extend some of the things it already does, for example, the portal where advisers can suggest functions it would like Intelliflo to build. He predicts its robo-advice offering will also be expanded.
Eatock says Intelliflo is “100 per cent committed” to its open architecture, which means advisers can link Intelliflo with the platforms, product providers, asset managers and software partners they choose.
What’s in it for Invesco?
Invesco is not the first fund manager to acquire an adviser software firm. In 2010, Standard Life bought Focus Solutions for £42m. In 2016, Schroders announced its investment in Benchmark Capital, which sits behind the Best Practice network, Fusion platform and software company Creative Technology.
Fund houses have also been taking stakes in online investment management start-ups, with Aviva investing in Wealthify, which it is offering through its platform; BlackRock investing in Scalable Capital, which also has advice permissions; and Schroders being an early investor in Nutmeg.
Invesco itself already has form when it comes to buying technology firms, with its US parent acquiring robo-adviser Jemstep in 2016.
Money Marketing also reported in April the fund manager is considering launching a direct-to-consumer investment offering in the UK that could be brought to market by the autumn.
One Intelliflo user tells Money Marketing an Invesco representative said the fund manager was looking at buying distribution through the deal.
Intelliflo was clear the deal would result in further investment in its technology
Several commentators say fund managers are jostling to establish themselves in an increasingly disintermediated market.
Nucleus chief executive David Ferguson says previous acquisitions of this kind – and other recent deals, including platform tech firm FNZ taking a stake in adviser software provider Advice Front – are evidence of a restructuring of the industry that was started by the RDR.
Ferguson says: “Essentially, advisers moved from being on the provider side of the table to the customer side of the table. There was a new market order being established.
“If I were an asset manager, I could see I would be concerned that I would be left behind by disintermediation. I can see I would try and re-establish my position so I can influence what is going on.”
Independent consultant Malcolm Kerr agrees asset managers are facing a number of challenges, resulting in them trying to get another piece of the value chain.
He says: “[One of the challenges] is the vast majority of asset managers’ business comes from intermediaries, and intermediaries are becoming far more sophisticated and are building their own investment solutions.”
Altus Consulting senior consultant Ben Hammond adds: “Fund houses are investing in the new world and wanting to be part of it.
“If you have got deep pockets, then purchasing a company like Intelliflo – which has a good foothold in the market, knows what its advisers want and has pretty good technology – then [lining that up] will be a lot easier than doing it yourself.”
Adviser: Nick McBreen
The tools of the trade should be robust and consistent enough not to disrupt businesses, whoever owns them. The only question anyone might have in the back of their mind is ongoing resourcing.
If you want something to go on developing then you need to be confident of [the buyer’s] commitment to resource it appropriately and keep it relevant and usable for 2018-style IFA firms. I have no reason to think Invesco won’t do that. I would assume that it is a smart enough business to know there are enough IFA firms deeply embedded in Intelliflo and it wouldn’t want to put that at risk.
Nick McBreen is an IFA at Worldwide Financial Planning
Hammond says the driver behind fund houses making acquisitions of this kind all comes down to distribution. He says: “[Fund managers will be thinking] ‘if it’s not about distributing our stuff in a vertically-integrated way then it has got to be about what our route to market is’, or ‘could we buy ourselves some technology to launch a platform’, for example.”
A source familiar with Intelliflo says that several years ago, discussions took place around the possibility of it becoming a platform, and that it had been encouraged to do so by several external parties.
However, Eatock dismisses the suggestion that Intelliflo would seek to obtain custody permissions and compete with platforms. He says: “The drivers behind this from an Invesco perspective are it believes technology is increasingly important as part of adviser businesses and it wants to make sure that moves the right way, because if advisers have got the technology, they will carry on being there.
“That is good news for Invesco but also other asset managers and product providers, too.”
Hammond says Intelliflo could link in with firms that run administration and offer a custodian service.
He says: “They do it a lot already in the customer- and adviser-facing spaces but use an outsource technology supplier to do all of the heavy lifting in the background while they run the easy-to-use front end.”
“Intelliflo is starting to do that through the IO Store. A lot of it is about putting applications into other systems and getting valuations out, but it could harness its API technology to create something new [for Invesco]. I could see Invesco potentially thinking about that as part of the purchase.”
Access to Intelliflo’s advice-market intelligence has also been touted as a driver behind the deal, but Eatock is clear no data will be shared between the two companies.
He says: “We can’t share our clients’ data. We have no desire to but even if we wanted to we would have to, under GDPR, write to our clients explicitly stating the purpose for which we wanted to use the data. That is a GDPR requirement.”
The view from Invesco: Chris Lyes
Why we bought Intelliflo
Intelliflo shares with us a laser-focus on the UK adviser market. The UK is an important market for Invesco globally – we have got a good business here working in partnership with advisers over the past 40 years. We can see opportunities for us to improve the way we deliver our investment going forward by having an innovative technology firm like Intelliflo as part of the wider Invesco family.
We may look to roll out Intelliflo overseas if we can find opportunities where it makes sense. We bought Jemstep a couple of years ago in the US and there are some interesting conversations about the innovation it has been driving in the US market with intermediaries.
We are increasingly bringing our strong global investment capabilities to clients based all around the world. Where we can offer enhanced services through things like Intelliflo, we will look at that, but that is not something we are planning to roll out tomorrow.
Our focus is working with Intelliflo and improving the overall delivery of service to clients
The focus for Intelliflo and Invesco is ensuring we provide a seamless service to the current clients and improving and investing in the core product it has in the UK market.
We are committed to maintaining the open architecture model they have in terms of access to other fund managers, platforms and products. One of the reasons Intelliflo has been successful is its ability to help advisers build the portfolios and solutions they need from across the whole market, and we are committed to making sure that continues.
In making this acquisition, our focus is working with Intelliflo and seeing how we improve the overall delivery of service to clients and continue to invest in its business.
Chris Lyes is Invesco UK retail distribution head