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Creating a monster: The race to become the new SJP


A major industry report examining the future of UK financial services has warned the race to become the new St James’s Place has created weak business models which are unlikely to drive long-term profit.

Money Marketing has exclusively obtained a copy of the latest report from influential industry analyst Ned Cazalet, whose explosive Polly Put The Kettle On research 10 years ago challenged the life and pensions industry about the drive to win new business at any cost.

This time the Cazalet Consulting chief executive takes aim at the trend towards vertical integration, where providers look to take a slice of every part of the advice process – from the advice itself, to the platform, to the investment management and all that is in between.

Cazalet calls it the “Frankenstein” approach to distribution, bolting on investment propositions and advice arms until they are unrecognisable as a whole.

But he questions whether this model will ultimately deliver for the providers, as well as the overarching role of platforms in the push for vertical integration.

Money Marketing has also sought to put his analysis into a wider context, examining what the implications are for advisers and clients in a world of in-house advice on an increasingly narrow pool of investments.

The new SJP

In his report, Life and Platforms 2015-16, Cazalet notes the post-RDR trend of life companies, platforms, advice firms and fund groups joining forces to create vertically integrated models.

He says: “In the race to become the new SJP, all sorts of interesting, sometimes unlikely, and in a few cases seemingly improbable alliances are being forged. To some extent, this is motivated by the thinking that in a post-commission world where there are only so many basis points that can decently be extracted from the consumer, if two can live as cheaply as one, then that is all to the good.”

But he reiterates warnings that where investment propositions are increasingly reliant on one another, there is a danger if something in the advice process goes wrong.

He calls this the “polo mint” proposition; a complete investment circle with a “gaping hole in the middle”.


Cazalet gives the example of a platform technology provider working with a white-labelled platform, which has partnered with a consolidator firm. In turn at the heart of that model will be a centralised investment proposition, which links back to Sipp providers and to the original platform.

In that scenario, Cazalet questions who is standing behind the advice. Where will the redress bill ultimately fall, and will that firm be able to afford it? Who will provide the investment in platform technology? Who is responsible for the ongoing advice, and what happens to the adviser who was bought out in the first place?

Frankenstein firms

Cazalet says while some powerful vertically integrated firms have been established, he is not convinced about the merits of all of them.

He says: “Some may turn out to be financial services Frankensteins. A spot of grave robbing a la Burke and Hare gets you a fund proposition arm here, a distribution leg there, a platform backbone somewhere else and, when you have finished, bring the parts back to the lab, stitch them up … and lo and behold, it walks. A new force in the land.”

The report analyses the pre-tax profit and turnover of five major advice groups – Intrinsic, Openwork, Positive Solutions, Sesame and Tenet – between 2007 and 2012.

Across 8,000 individual advisers, the report notes in the six years before the RDR those five advice groups made a total combined pre-tax loss of £38m.

Cazalet says: “If they failed to make hay while the sun was shining, what is there to say they will do any better under the extremely challenging conditions brought about by the implementation of the RDR?”

The in-house players

The ultimate model vertically integrated firms are chasing is SJP, with over 500,000 clients mostly going in to in-house funds with an average of £120,000 to invest. The report puts funds per adviser at around £20m, and gross inflows per adviser at £3.1m last year.

SJP made a pre-tax profit of £151.3m last year, down 17 per cent on the previous year’s profit of £182.9m.

Cazalet’s report examines the other providers pursuing an in-house model, excluding the banks and building societies, and weighs up their chances of success (see table).

He notes the launch of 1825, Standard Life’s advice arm, which is targeting 150 advisers and so far has 87 under its belt. Recent acquisitions such as Baigrie Davies and Almary Green have pushed client numbers to 9,400 and assets under advice to £3bn.

Cazalet is also particularly scathing about Sanlam, who recently pulled out of a deal to acquire Caerus, as first revealed by Money Marketing in April.

He says: “It is not at all clear where Sanlam’s UK wealth business is going. In the past year or so there has been almost wholesale change in senior management, and the adviser acquisition business models have altered considerably.”

Grave robbing gets you a fund proposition arm here, a distribution leg there and a platform backbone somewhere else

He adds adviser numbers have “fallen off sharply”, from a stated aim of 200 advisers back in 2013 to 65 advisers currently.

Cazalet believes Standard Life’s 1825 may prove successful, but it less convinced about other vertically integrated firms.

He says: “It is clear SJP, with its tightly integrated structure and strong culture is the one they all want to be, but are unlikely to do so. That is, with the possible exception of Standard Life, which has been planning its move over a lengthy period before executing with suddenness and decisiveness.”

Old Mutual Wealth is another life company attempting to reposition itself through acquisitions. It has a total of 3,380 advisers through the Intrinsic network, which it bought in 2014, though only 1,230 are investment advisers.

Cazalet says Old Mutual Wealth and SJP are very different businesses, given that Old Mutual Wealth’s distribution includes mortgage brokers, and that not all business flows into Old Mutual funds. He also points out the SJP advice proposition is markedly different from that of Intrinsic, with assets under advice at the latter significantly lower.

But he adds: “If [Intrinsic] can keep its nose clean in terms of regulatory compliance, having it in the camp could be a useful source fund flows to the Old Mutual platform and into in-house funds.

“With a gradual industry-wide shift towards restricted status, it would seem likely that over time, a number of currently independent Intrinsic advisers will switch to restricted, putting more shoulders behind the wheel of integration.”

On Sanlam, Cazalet says: “The question is whether it can fashion a strategy and regain momentum with a relatively small number of advisers and a half built consumer proposition, with competitors nosing around its better advisers.”

Platforms and the “Flintstones” model

As part of the trend towards housing all aspects of advice and investment under one roof, many large advice firms (including some owned by providers) have developed in-house investment solutions: Intrinsic has Cirillium; Openwork has its Omnis range; and Paradigm has its discretionary fund management service Tatton.

But platforms’ in-house investment offerings are also competing for assets: for example, Fidelity FundsNetwork, Standard Life’s My Folio range, Elevate and the Architas multi-manager proposition, as well as Parmenion, which was bought by Aberdeen in January.

Cazalet has two main warnings for the platform market, and both of these are aimed at the traditional life companies rather than the likes of “independents” such as Transact, Nucleus and Ascentric.

The first relates to the level of investment needed to update and maintain platform technology. Cazalet points out as at the end of 2014 Axa Elevate and Standard Life had posted a combined loss of over £300m, with total assets under administration of £30bn. They invested £422m between them over the period. Yet Transact, Nucleus and Ascentric invested about 10 per cent of that figure, £45m, to achieve a similar level of AUA of £36bn.

Delving into staff numbers, Transact, Nucleus, Novia and AJ Bell each have business development teams of six to eight people. Axa Elevate has 34, which Cazalet says helps to explain why it lost £31m in 2012, £20m in 2013, and £17m in 2014.

Cazalet says: “We refer to this as a ‘Flintstones’ model – a modern platform business, but with a ‘stone age’, old-style life company approach to going to market and throwing money at a project in the hope it might somehow come right in the end”.

Standard Life is understood to have paid £40m as part of its deal to acquire Elevate, announced last month.

Cazalet’s second warning relates to ensuring platforms are equipped for the post-pension freedoms era, where drawdown is set to become more prevalent.

He says platforms have typically shied away from embedding financial planning and risk tools as a core part of their system, and believes this may continue for “true IFAs”.

But he says platforms also need to evolve beyond the risk-profiling tools and risk-rated funds they have supported in the past, when the focus was on accumulation. Instead, he argues, platforms need to adapt and offer services better suited to the pension freedoms world.

Cazalet says: “As an increasing number of advisers move to a restricted basis, and vertical integration and adviser consolidators seek to pick up talent, we think embedded tools and processes will become the norm.

“This is especially true for decumulation activity which, along with presenting great opportunities to advisers, providers and platforms, also carries significant conduct and compliance risk.”

Adviser views

Martin Bamford
Managing director
Informed Choice

Vertical integration is certainly successful for the firms that adopt it – you only have to look at firms like St James’s Place, their profits and the rate at which they are attracting advisers. I am less convinced though about whether it delivers benefits for clients. Margins have been more about driving higher profits than better service for clients.

Ian Thomas
Pilot Financial Planning

Where vertical integration does not work is gluing bits and pieces together that just do not fit. There is potential for firms which do not need to justify their independence to create efficiencies with a bit of joined up thinking, but these do not seem to translate to cheaper costs for the client. My concern is it smacks of a pipe down which to pump products, and we know where that approach got us before.

What the industry says about “Frankenstein” firms


Malcolm Kerr
Senior adviser

Vertical integration is a more robust model in terms of potential profitability but quite difficult to achieve. Firms certainly need a degree of scale if they are going to take responsibility for advice, and have their own investment solution and their own platform. It is an obvious goal for advisers looking to move in one direction up the value chain and providers asset managers looking to move the other direction. We believe we are going to see an increasing number of vertically integrated firms – some are going to be successful, while others will find it very challenging.


Phil Young
Managing director

The FCA is becoming more aware of vertical integration, and there is a regulatory requirement for firms to show that each component part of the value chain runs on a profitable basis and is not cross-subsidising other parts of the business.

A lot of firms make money out of discretionary fund management and asset management services, so the emphasis on cost is going to be important and could definitely be improved upon. That is one of the accusations always levelled at St James’s Place, people do not always understand what the costs are.


Paul Feeney
Chief executive
Old Mutual Wealth

Some say more choice is the most important thing. But others want better choice in that someone other than themselves has vetted something and is prepared to stand behind it. It is a universal untruth that wider choice equals better choice. It is also important to note that we sell other people’s funds and investment propositions other than our own. Nobody has any target anywhere in Old Mutual Wealth to drive business to our investment solutions – it is up to the market to decide where best to invest.

We are not trying to be the new SJP. If anything we are trying to be a new age wealth management business.


Steve Murray
Chief executive

We are trying to create a business that is centred on client needs, and helping to answer the question of providing advice at the top end and generating sufficient scale to service a wider part of the market. If we can use our platform and our investment manager, we can pass benefits on to the end client, be it risk management, expertise, or price competitiveness. The danger of vertical integration lies in mandating the constiutent parts and never deviating from them. That is where the Frankenstein model becomes a nightmare. We need to ensure we have done the due diligence on our investment partners, but we can change those constituent parts if we need to. The question is if firms can build over time a model that delivers on client need while still being commercially successful.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. And where does the clients’ best interest fall in all this? Yes, some of culprits offer platitudes, but the larger the firm the more likely you are to have formulaic advice, disengagement from the client. The offering is generally what the firm wants – not what the client really wishes. And of course there is always the revolving door of personnel – how regularly will the client have to deal with a new face?
    In financial services, you can slice it anyway you like, but there is no escaping – small is beautiful as far as clients are concerned.

  2. charlie palmer 3rd June 2016 at 8:00 am

    If the story were true it would be a good one. SJP’s distribution also loses money year after year after year…it lost £6.1m in 2013 and £10.9m in 2014. See page 20 of their last published annual report for 31/12/14.

  3. In the post RDR world with typically three players in the value chain, adviser, platform and fund manager, it is curious that the typical annual fees (say 1%, 0.3% and 0.8% respectively) are weighted in favour of the adviser but the enterprise value is still heavily in favour of fund management. This seems to be the basic business model of consolidators; round up advisers, impose CIP, persuade the market they should be valued like fund management – sell.

  4. James Hurdman 6th June 2016 at 6:01 pm

    The claims made by vertically integrated models remind me of the Henry Ford quote “Any customer can have a car painted any color that he wants, so long as it is black”. Extending the analogy, most people need a car, but let’s not pretend that firms with this business model are manufacturing a Rolls Royce that is bespoke to a clients’ exact requirements.

  5. […] 2016 report by Cazalet Consulting found that St James’s Place could boast over 3,030 advisers, dwarfing all […]

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