Ian McKenna: Aegon’s bold strategy after Cofunds deal

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Aegon’s acquisition of Cofunds potentially puts the company in a very strong position not only to build deeper relationships with established adviser firms, but also to support the emergence of the next generation of advice businesses.

Aegon chief executive Adrian Grace says he positioned the deal as potentially the last piece of the jigsaw in helping Aegon to deliver on a bold strategy.

He says the company has made technology one of its core strengths and having done so it is now in a position to fill the bucket.

This is consistent with Aegon’s approach since entering the platform arena. First it worked with Novia’s innovative platform team to build an initial service. Aegon then took control of this so it could address the wider set of issues that a life insurer with decades of historic business also needs to be able to accommodate.

It also invested heavily in a consumer-facing service, Retiready, to assist clients where their adviser is no longer trading. This makes Aegon well placed to deal with orphaned Cofunds customers; something several ex-Cofunds staffers have previously suggested to me was a significant hidden cost of ownership.

Grace is quick to stress he believes Aegon has bought a good business with good people that fits well with technology that Aegon has already built.

He sees a £1tn UK savings market by 2020 made up of £600bn advised (currently £380bn), £250bn direct-to-consumer and £150bn in workplace savings. Insisting that organisations need to be scale players to succeed in such a market, he is targeting Aegon to control £100bn of that £1tn market.

A key success factor of this acquisition will be how effectively the firm migrates the assets from the legacy Cofunds technology, which previous owner Legal & General was not willing to invest to replace, to Aegon’s platform. Aegon already has considerable experience in this area, having so far migrated 200,000 of its overall 800,000 UK customers from legacy systems to their new environment.

Grace has already pulled off one very smart deal this year by buying BlackRock’s workplace pensions book and admin business (see my analysis of this deal in Corporate Adviser). The company has also jettisoned its annuities book to L&G, moving out of a market that was not seen as core.

There will be elements of the Cofunds functionality which is crucial for Aegon to maintain. For example, Cofunds won the mandate to be the first platform on Intelliflo’s automated advice service because it could deliver a level of real-time, straight-through processing that none of the other platforms invited to tender could achieve. This was a significant win as Intelliflo now supports approximately one in four IFAs and includes its client portal service, with the automated advice option, at no extra charge.

Wider services 

This is a great example of the sort of deal Aegon could be very well placed to support in the future. The role of life companies and how they help distribution businesses is significantly changing. Depending on the size of the firm, increasingly in the future they will not necessarily just create solutions for individual clients but also wider services which may include the provision of operational and other infrastructure.

Just as the BlackRock deal gave Aegon the capability to support workplace advisers in need of a wider range of services, so the scale Cofunds makes them well placed to supply wider services to individual firms.

There are some very interesting funds that have been created for Retiready and these could be very useful to advisers.

In the new world, organisations like Aegon may provide a different and wider set of services to advisers than just manufacturing packaged products for the adviser to sell. They could leverage their scale to offer a wider range of support and infrastructure.

It is increasingly clear that in the digital world independent advice does not justify the extra costs it incurs; this actually opens the door for very different manufacture and distribution relationships. Aegon could now be in a very good position to support these.

This is the sort of area that companies like SEI has been focusing on for the last year or so. In this context it is perhaps not surprising that the US investment house has announced it is moving some of its institutional arrangements from Cofunds to Allfunds. David Simpson is moving from SEI to join Aegon’s technology supplier GBST can only strengthen Aegon’s capability in
this area.

Nationwide confirming the retention of its Cofunds relationship after the ownership change is, to me, a far more important bellweather.

Regulatory approvals mean Aegon will not get its hands on Cofunds until the end of this year. Pressed on a timescale, Aegon is keen to set expectations, realistically suggesting it should be in a good place, with the vast majority of the migration done by the end of 2018.

All this change is not going to happen overnight but it must be good news for clients, Cofunds staff and advisers that the business now has owners who are committed to maintaining ongoing investment – something that has been at best erratic under a number of previous owners.

This must also end speculation over Aegon’s commitment to the UK, something its competitors have been trying to question for years. Providing the funding for two major deals in just a few months sends a clear message.

Ian McKenna is director of the Finance & Technology Research Centre