From a “ranting mob in Edinburgh” to a major industry player, Nucleus chief executive David Ferguson believes the company is finally where it deserves to be. He says: “There have been spells when we have run ahead of plan and spells when we have run behind it but we have a group of really happy customers now.”
Ferguson says his background as an actuary has informed his role at Nucleus. “Don’t ask me why I decided to be an actuary. I was good at maths at school, which was probably the main reason. But I do not think I would be doing this if I had not had that background.”
After his brief actuarial stint, Ferguson went to Ivory & Sime to do product marketing. “I got my marketing stripes when I was an actuarial student. We used to write software for illustrations and we launched a new product that was so complicated it needed another piece of software to make it understandable. The marketing manager liked it and asked me to work in his department.”
He continued his marketing experience at Scottish Life, where he joined as marketing manager in 1996. “I liked marketing because it was more focused on outcomes.”
The idea for Nucleus developed while Ferguson was at Scottish Life. “It was predicated on the belief that the industry was broken. Bigger companies did not understand the concept of mass customisation and that that was not going to be a sustainable model.
“We felt the internet was changing other industries and that it was inevitably going to happen in financial services too, so we tried to embark on something different. We were unsuccessful in raising the money, so we started The Abacus instead. That was really to earn a living while we got Nucleus together.”
The Abacus was a strategic consultancy for life insurers and fund groups. Ferguson says: “The drive was to move the industry to a more progressive place.”
Although the company had some successes, such as kickstarting the FSA’s with-profits review in 2001, Ferguson found consultancy work frustrating.
“Organisations would be very happy to pay for advice but would be less willing to act on it. A lot of our best ideas never saw the light of day.”
Ferguson says that like the rest of the platform industry, Nucleus’s growth has been a slow burn. “The platform sector did not explode quite as people expected it to, progress has been a bit slower because of the change required but I think we are there now.
“The change required at adviser level has been huge. There are some IFAs who embraced technology some time ago but the market has still been operating on a rather older model. There was an unwillingness to be transparent among some IFAs but that has changed.”
IFAs are at the centre of Nucleus’s proposal. The company is 51 per cent IFA-owned, which Ferguson believes gives it an edge. “It gives us an accountability. The amount we spend on our platform is less than many of our competitors but we still win top prizes for service.”
The company has 110 IFA firms as shareholder clients, including 20 new firms so far this year. Ferguson says the current growth rate should see the business achieve profitability in the second quarter of the year.
But despite growth being on track, he does not expect 2012 to be a smooth ride. “Things are really uncertain. I think there is a decent chance over the next 10 years that a significant chunk of all the retail and corporate money in the UK will migrate on to platforms but what is not clear is how that will be distributed. How much will be on advised platforms, how much on execution-only, how much on corporate?”
One thing Ferguson is certain of is the resolution of the bundled/unbundled charging debate. “The road is unquestionably travelling towards unbundled. I do not think the FSA has made the journey and the pace at which we will reach this outcome entirely clear but that will not damage the end result.”
Ferguson believes the FSA has had a tough job. “I have a lot of sympathy for the FSA because there are large players trying to slow things down and the regulator has to listen to all of them. Some big fund managers say if we go unbundled, they will no longer be able to negotiate bigger deals, which is just nonsense.”
Ferguson expects the FSA will follow through with its proposed ban on cash rebates. “Rebates are at odds with the transparency that will come with the RDR. We think the cash rebate model is the best one because it is clean and customers understand it. But if that is not going to persist, and it would appear to be that it will not, the only credible model is no rebates at all. Unit rebates are an operational nightmare. The idea that people will get a small amount of money in cash and then have to go and buy units to get rid of a fund they do not want is nonsense. You could have £5-worth of rebates and pay £20 to get rid of them because of trading charges.”
However, Ferguson does not think any of these issues will hinder the growth of the market. “Growth predictions are always wildly optimistic because they are usually made by consultants who have a vested interest.
“The numbers I saw were £400bn-£500bn by 2015, which would be a stretch but it is possible. I think we will see growth in third-party products such as annuities or life insurance that you can plug into platforms rather than them being platforms in their own right.
Platforms will have to recognise that they should cater to as wide an audience as possible. Thinking one size fits all is sadly deluded.”
Ferguson believes the market is shifting from traditional platforms.
He says: “Last year was the first time net inflows into wraps exceeded supermarkets and Nucleus’s results reflected that. We grew by 70 per cent last year and I think we can maintain those levels and play a big part in a big market.
Born: Edinburgh, 1969
Education: Edinburgh Royal High School, degree in actuarial mathematics and statistics at Heriot Watt University
Career: 2006-present: CEO and founder of Nucleus; 1999-2006: director, The Abacus; 1996-99: marketing manager, Scottish Life International; 1994-96: product development manager, Ivory & Sime TrustLink; 1991-94: trainee actuary then product development manager, Life Association of Scotland/ Britannia Life
Likes: My life, inspirational people and live music
Dislikes: Closed-mindedness, shallow people, those who created the industry’s problems, then blamed everyone else
Drives: Porsche Cayman
Book: Anything by Seth Godin, Gary Vaynerchuk or Hugh MacLeod
Film: Twelve Angry Men
Album: Closing Time by Tom Waits
Career ambition: To democratise UK retail financial services
Life ambition: A long, fulfilling and healthy life with my wife
If I wasn’t doing this I would be…Getting on with my other work.