Old Mutual Wealth chief executive Paul Feeney says the company has learned the lessons of the abandoned replatforming deal with IFDS as he sets out his vision for a “controlled advice” business.
In a wide-ranging interview, Feeney looks back at his five years at the top and the transformation of the company from Skandia to Old Mutual Wealth.
He discusses the company’s approach to distribution, managing conflicts of interest, and ensuring suitability at restricted advice network Intrinsic.
He also talks about coping with regulatory reform, and provides an update on how the wealth business is breaking away from its Old Mutual parent.
IFDS and platform profits
Old Mutual Wealth decided to scrap its replatforming contract with IFDS and Australian technology firm DST Bluedoor in May, after initially agreeing a 20-year outsourcing deal in 2013 and after racking up costs totalling £332m. Old Mutual Wealth has now partnered with FNZ, and expects the platform to be ready to accept new business by late 2018 or early 2019.
As the man at the heart of one of the biggest adviser stories of the year, Feeney has faced criticism on why he did not intervene earlier to rein in the project’s spiralling costs.
He says Old Mutual Wealth “parted amicably” with IFDS and the contract was ended by mutual agreement. But he remains tight-lipped on what went wrong, and refuses to be drawn on whether anybody has lost their job as a result.
He says: “You want to give a programme a really good chance to succeed. Both sides wanted to do that. But there does come a point where you have to make a decision, and we just reached that point. We have hit the ground running with FNZ. Believe me, our teams have learned a lot.”
Over Feeney’s tenure, the platform has gone from being loss-making to posting a £1m half-year profit in 2012 to a £20m profit as at 30 June this year. It now manages £45.9bn in assets.
Feeney admits it is hard for platforms to make a profit, given the constant need for reinvestment.
“We are already seeing consolidation and people pulling out of the market. That’s an inevitability over time.
“We’re not looking to consolidate platforms; we’d like to get our own one in first. But we are looking to attract assets, and you can only do that through the quality of your proposition and your service.”
The trouble with vertical integration
The FCA has highlighted the risks of “distorting competition” posed by vertically integrated firms such as Old Mutual Wealth, and the interconnectedness between platforms, fund groups, discretionary fund managers and advisers. The regulator is examining this issue as part of its ongoing platform market study.
Feeney says he came up with the term “vertical integration” as it applies to Old Mutual Wealth, and jokingly says he “rues the day” he did so. “I gave a lot more thought to the business we were trying to build than to the term itself.”
He argues clients want suitable advice, the right product for their needs, wealth management services based on growth or income, and good investment returns.
“Consumers don’t necessarily think about it that way, but all of that equals wealth management. To have that, you need an integrated firm. We have had such a fragmented retail investment market in this country. Few people have put together the full proposition in one way. What I wish I had come up with at the time is ‘full service wealth management’ as opposed to ‘vertical integration’, which has now taken on a life of its own.”
We are already seeing consolidation and people pulling out of the market. That‘s inevitable
Feeney says there are no targets on flows into asset management arm Old Mutual Global Investors, or on flows into the wider business. He says long-term incentive schemes exist for growing the advisory business, but says these targets can be met whether client money is put with Old Mutual Wealth or its rivals.
Old Mutual Wealth acquired Intrinsic in 2014, and Caerus earlier this year. It also has Old Mutual Wealth Private Client Advisers, which is geared at high-net-worth investors.
Providers acquiring advice firms are often met with industry cynicism. But Feeney argues its advice arms are not about buying or controlling distribution.
“What I have said previously is Intrinsic’s strategy is to be the number one ‘controlled advice business’. Not ‘controlled distribution’. If you think about it, for most parts of a business you would want control: control over marketing spend, over products and proposition, pricing, and distribution. But looking back over the years, one of the issues is some of those big networks and advisers have not been particularly controlled. That doesn’t help anybody.
“Ultimately, people want good, suitable advice from someone they can trust, and they want someone to stand behind that advice. We stand behind all the advice our Intrinsic advisers provide, so it’s important that process is controlled.”
Feeney on restricted advice and vertical integration – and a bit about jam
Old Mutual Wealth chief executive Paul Feeney has reiterated his defence of the company’s business model and argues the company offers “better choice” to clients.
Feeney says potential conflicts of interest exist within any business model, not just vertically integrated firms. He says Intrinsic mana
ges any conflicts of interest through its independent board, an investment advisory committee and a restricted panel where Old Mutual Wealth is one of three platforms.
He says: “I dislike the term restricted. It sounds pejorative, and it isn’t. For us, it comes down to better choice, not unlimited choice. In the real world, you don’t walk into a supermarket and see 10,000 versions of jam. What you would hope is somebody in the supermarket’s chain of command has determined price and quality in the range of products they put on the shelf, as opposed to a warehouse which says ‘knock yourself out’.
“We are providing multi-asset wealth solutions; that’s the advice, the plan, the wrapper. In our latest results, integrated flows tripled in the last six months. Yet 90 per cent-plus of the funds inside our portfolio solutions are not our funds. People don’t realise that.”
Controls at Intrinsic are evident in a number of ways. Some 10,000 advice recommendations are checked every quarter, and in higher-risk areas such as defined benefit pension transfers, all advice is pre-vetted by business assurance managers before it is given, whether the recommendation is to transfer or not. Feeney says for the Caerus acquisition, control came down to due diligence.
“We’re not operating in a risk-free world, and advice is not a risk-free process. At the same time, you are looking for businesses that have good values, strong processes and controls, and you are checking files. We wouldn’t have purchased Caerus if we were not happy with any of those issues.”
Regulation and the road ahead
With the FCA asset management market study having concluded and its platform study only just beginning, there should be a lot on the regulatory front for Old Mutual Wealth to contend with.
Yet Feeney claims, perhaps unsurprisingly, that all is in hand. Since June, OMGI has operated a fixed ongoing charge on its Cirilium multi-asset portfolios, in line with the FCA’s plans for an “all-in fee”. This is in addition to the fixed charge structure on its UK funds. The regulator is also consulting on requiring fund groups to return “box profits” to the fund, where buy and sell orders of a fund are matched and asset managers retain a margin on the transaction. OMGI has pledged to end this practice by early next year at the latest.
People want good, suitable advice from someone they can trust, and they want someone to stand behind that advice
As for the platform market study, Feeney says 80 per cent of the share classes available on the Old Mutual Wealth platform are the cheapest on the market “because we use our scale to drive down prices”.
Away from regulatory reform and the revised replatforming project, Feeney also has to move forward with his role in the break-up of parent Old Mutual, otherwise known as the “managed separation” process. He says much of the work involved in separating out the wealth business is complete, and the next stage will be listing Old Mutual Wealth on the London and Johannesburg Stock Exchanges.
Reflecting on his term as chief executive so far, Feeney says it has been challenging at times to stay true to the kind of business he wants to build. “It’s easier when you start out: you’re standing on the white cliffs of Dover, the wind’s blowing in your hair, bluebirds are flying overhead and you can see the coast on a clear day, and that’s where you’re going. Then three years later, you’re crawling through the mud and the guts, and the bullets are flying and the shrapnel is bursting, and you’re asking yourself, where are those bluebirds again?
“I’ve been building this business now for almost exactly five years from when we started and where we conceived it. It’s a very different company to what it was. Five years ago Skandia, as it was, made a lot of its money predominantly out of closed life insurance books in Europe.
“The platform in the UK was much smaller, and lost money. We’re a different business, and it’s been a hell of a journey, and not all of that has been smooth. But I’m pleased with where we are, and I’d like to see that through to the next phase.”