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Holly Mackay: The thinking behind today’s Cofunds/L&G deal

Holly Mackay MM blog

And so, for us retail financial services gonks, the biggest game of kiss chase in recent times has ended as life co giant L&G buys Cofunds. Of course this is all subject to FSA approval which in theory can take up to about 60 days – but in practice is unlikely to.

So what does this mean? Well firstly it’s not surprising as the writing had been on the wall for a long time. As an existing shareholder, L&G has not come out and built a proprietary platform as have rivals Standard Life, Aegon and Zurich, for example. Why would you, if you already own 25 per cent of one, has been the common assumption.

And what does this mean for IFAs? Well, the first thing I’m long enough in the tooth to know is that nothing will change overnight for the platform users. These things take a while to filter down to users. So no need to panic. L&G spends enough courting advisers not to want to rock the boat and there are some big wholesale deals here to look after.

What will be called into question is the long-term strategic intent of the acquirer. Business as usual? A platform which continues to support B2C (indirectly), adviser and institutional business? Or an internal engine for a life company adapting to life post-RDR and all the new and exciting opportunities which that represents? Let’s not dismiss the not inconsiderable amount of money that L&G already has on its version of the Cofunds platform with enormous customers like Nationwide (which we can lose sight of over in IFA land).

As well as future focus, the proposition itself will be questioned. Will the platform be forced to only sell L&G products? We’d imagine that early comments will say no – again this is a wait and see game which no-one can call yet. To some degree the majority of the market is weighing this up as we see how many advisers retain independent status throughout 2013 and beyond.

Finally, the depth of resource had by Cofunds in the past to service advisers has been limited. Independent platforms cannot compete with the life co bods in terms of numbers of people on the ground. Although it’s quality not quantity, it will be interesting to track how the depth of support resource offered to advisers changes. This could be a catalyst for improved service over time. No disrespect to any individuals – we’re just talking a numbers game here.

In terms of revenue, there’s little doubt that the more intermediated the business, the less wonga you make. So D2C in early 2013 makes more (revenue) than advised platform business, which makes more than institutional platform business. But with explicit charging looming – to be confirmed one way or t’other we think at the end of April – what will direct customers pay for a life co platform? And with skinnier margins than ever in the institutional world – well, that’s an increasingly tough and commoditised game to play. So when you start to look at profitability, not just revenue, advised channels (I think) look more compelling in a comparative sense than they have done for a while.

What does this mean for staff? Well, it’s always unsettling to go through any acquisition so I’m not going to meddle here or rock the boat. It always hits the top brass first – but sometimes we see very little change throughout the ranks. I imagine there’s a few hundred Cofunds staff a little bit freaked out today. Guys, I wouldn’t let this ruin your Easter. It’s difficult to acquire and train good platform staff. Sit tight.

And for shareholders? Groups buy shares at different times for different prices. Some will have more sunk costs than others to mentally recoup. So some will have celebrated more than others. All will have witnessed the very difficult game that running a profitable platform is and some will be glad for the exit.

L&G is a substantial force which is still to really declare its hand in the new-fangled IFA world where 75 per cent of new flows are on platform. Those in corporate world will tell you about its slam-dunk success in terms of land-grab in the first wave of auto-enrolment. So we watch with interest as their new retail story starts to unfold.

Meanwhile, a little era ends as the first UK platform with more than £50bn changes hands. I first trundled up to Mincing Lane ten years ago in 2003, to talk to this new-ish platform with only about £2 or £3 bn (from memory). Congratulations to Cofunds staff and clients, past and present, who have built a pretty impressive beast today. Now on to Chapter 2 as the courtship ends. What will the babies look like, how many are there and will the new Mummy be all strict and Gina Ford-like or the hippy permissive co-sleeping sort?

Holly Mackay is the managing director of The Platforum


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