Money Marketing catches up with Stuart Dyer to discuss the evolution of platforms and the ever-changing acquisition landscape.
Despite a distinguished career in financial services, Stuart Dyer once hoped to be a pilot. Due to colour blindness, the dream could not take off and the Soprano Consulting chairman is now heading into his 45th year in finance.
When he held the positions of chief operating officer and chief executive officer at Cofunds between 2001 and 2005, platforms were in their infancy.
Today, however, the simpler two-sided platform model that connected buyers and sellers for basic transactions has been replaced with complex equivalents.
Dyer now leverages his institutional experience in the nine-strong team at merger and acquisition specialist Soprano Consulting.
Money Marketing sat down with Dyer to discuss his decades in the market, all the way from Close Brothers Asset Management and Friends Provident to Cofunds, as well as what could be ahead for platforms and the consolidation of the advice sector.
Pre- and post-RDR differences
Dyer has held the role of chairman at Soprano since 2012, when the firm
was born at the start of the advice industry’s post-RDR chapter.
Facilitating acquisitions now is a different world from the “maelstrom” of working for major institutions, but is no less challenging, as the squeezed advice market continues to funnel out smaller providers and advice businesses.
He says: “The number of changes in the past seven years has been enormous, before even starting to compare them with working in the earlier years.”
Soprano currently has four staff looking for sellers in the advice market, which has a healthier appetite than some would predict.
Dyer says: “I would expect to see upwards of 700 mergers and acquisitions in the next five to 10 years and although many will be on the smaller side of the market, it’s demonstrative of how the industry is moving.”
The most significant change in the market since RDR came into play is the heightened pace of consolidation, he believes.
Dyer adds: “Advice firms that weren’t too well-run were looking to exit the market pre-2012, which many did, and there was quite a lull in corporate activity, but things have picked back up in a major way in recent years.
“We can really attribute that to changing demographics in the advice industry and the continuous changes in legislation. Seven hundred transactions is actually relatively small given the size of the market.”
The most notable recent deal under Dyer’s guidance was for Ascot Lloyd, which acquired rival consolidator Newell Palmer late last year.
The deal took Ascot Lloyd above the 100-adviser mark for the first time, pushing client funds to £7bn and leading to a projected turnover figure of £50m for the 2019 calendar year.
Dyer says: “I’ve seen some of the largest acquisition deals in the past three to four years in my work, and such a variety of businesses come through the door.
“My own view is that all businesses are different, and need a structured and well-informed approach to be in the best position to sell.”
Changing platform space
With competition on platform pricing and offerings rampant, Dyer says the market needs to adapt to advisers’ needs. He notes: “There has been so much evolution but, in reality, the platform market is still quite new – effectively less than 20 years old.
“The markets these platforms were looking to serve at the time of their launch are so different to what they are trying to do now. IFAs were once far less corporate than they are now.
“Advisers had holdings with every asset manager under the sun but don’t operate like that now, and there’s a noticeable strategic trend towards greater concentration of holdings.
“Some platforms will always do better than others and that is down to structure.”
In the years after Dyer’s work at Cofunds, Aegon would go on to purchase its retail and institutional platforms.
Both Aegon and Aviva have faced severe and heavily publicised platform upgrade issues in the past year.
Dyer previously spent four years as director of investment marketing at life insurer Friends Provident, which was merged into Aviva last year.
He says: “It’s always interesting to see how businesses transform and develop as the years go on, and regulation develops and then bites.
“Platforms are a set feature of the market now. Aegon has had its tech challenges with Cofunds and clearly there needs to be more efficiency, but platforms will stay, even if integration issues continue for the big guys.”
Dyer recalls the manual processes of developing a platform at a time when the importance of client data aggregation was gaining fresh momentum in a new age of technology.
Towry Law was one of the first major firms to sign up to the Cofunds platform back in 2001, and Dyer notes the scale of nationals could have posed a challenge. He says: “Towry was a big part of my work at Cofunds. Processes were clunky in those times – not the way they are now – and we had to collect client information and data in one spot with manual processes.
“It was crucial to look at what they were really offering and how that could be matched in the development.”
In almost seven years at Close Brothers between 2006 and 2012, Dyer experienced monumental changes in the organisational and corporate structures of leading asset managers.
He says: “My time at Close in those vital lead-up years before RDR was very interesting. Asset management was really changing from being transactional to far more wide-reaching.
“There were a lot of new concepts in business and in operations during those years. I worked to develop and integrate a discretionary fund management outsourcing equivalent for various systems, and that sort of work from asset managers was really heralding a new phase for all financial services industries, down to the financial advisers who worked with them.”
In his last two and a half years with Close, Dyer worked as head of intermediary acquisitions. He says: “It’s very different to compare and contrast now with a major institution versus my current work with a small firm.
“Governance issues were heavy at Close, and with a smaller business, you can naturally afford to be more nimble.”
Despite that, Dyer says the same standards worked to under Close and back at Cofunds were vital to establishing a method for conduct at Soprano. He says: “No matter where you’re working, it’s about understanding the corporate buyer, what they want and how they need that to be delivered.”
Learning from history
Dyer first entered the professional workforce with accountancy and audit giant KPMG in 1974.
Although accountancy may seem dry, Dyer credits much of his business knowledge to those foundational eight years. He says: “Training as an accountant is often looked upon as being boring and as churning out people who are boring, but what it really does is give you the clearest possible view on what is important in business.
“If you’re going to work on securing deals between major firms, it’s important to know the fundamentals, and that’s what you learn in accountancy.
“You learn how exactly businesses make money down at the numbers. You can understand how institutions rate value, and experience where the underlying sums go and how they work together.
“I’ve done quite a few different things over the years, from focusing on the back-office systems right across to marketing work, and at the end of the day, when it all comes together, it’s about good governance models and good communications.
“It’s important to make sure standards in smaller firms are similar to those held by big corporate businesses and that’s what I take into my position at Soprano that is leveraged from my former experiences.”
Smooth sailing ahead?
Looking forward, Dyer is confident that public interest in advice will continue to increase, even if its providers continue to struggle.
He says: “There are still a lot of smaller firms that will find it very hard as regulation increases and things get more technological and more costly.
“They will have a place though, as will consolidators, who will continue to grow through acquisition until they can build organically.”
Dyer also expects private equity backers will have more than a foot in the door of the M&A market.
He says: “There is so much interest from private equity at the moment. They used to only be interested in acquiring advice firms that had profits of at least £5m, and there weren’t many IFAs like that a few years ago.
“Now the private equity firms want to build their own types of consolidation models. Structurally, it’s a growth market, which is good news.”
Eight years have passed since the RDR redefined the way advice firms engaged with product providers, platforms and each other.
Dyer says the next eight will bring similar levels of change, but will not reorganise the industry quite as dramatically as predicted.
The future of platforms
Future success rests on how technology can push forward
The most important thing for platforms in the future will be to deliver truly seamless integration between the systems that advisers use to run their own businesses. This means not just practice management systems but also portfolio optimisation tools, cashflow planning and financial planning tools, and many more, so the actual work and analysis can be carried out within the adviser’s systems and then executed electronically on a platform’s system using APIs and other forms of data interchange.
This has been technically possible for several years but no platforms have stepped up to the plate to take advantage of the huge benefits this could give advisers and their clients, and to keep the platform industry progressing.
Ian McKenna is director at the Financial Technology Research Centre
Platform players will divide into two camps
I have no doubt that platforms will exist in 10 years. However, while the platform market will survive and may indeed be working well, it’s likely platform players will divide into two camps. The first group are likely to focus on only offering custodian, dealing and execution services, while the other will include those that offer a broader proposition, which includes a digital client engagement service via white label to advisers and their clients.
Advisers who use this second group of platforms will, of course, continue to own the face-to-face relationship. But as clients become increasingly tech-savvy and want information at their fingertips, this has to be a service that platforms deliver to advisers and their clients in order to stay relevant.
Platforms that have proprietary technology and continue to invest will naturally have an advantage over those that don’t in this respect, as they can be far more agile when it comes to making the necessary changes to adapt and survive.
Verona Kenny is head of intermediary at Seven Investment Management