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Nic Cicutti: Forays into buying distribution are doomed

Insurers need to learn that the road to buying distribution is littered with expensive mistakes


About 20 years ago, when I worked on a national newsaper’s financial desk, a story came in about Nationwide Building Society selling its loss-making 300-strong estate agency chain to Hambro Countrywide for £1. The deal in effect valued Nationwide’s estate agency business at three branches a penny.

The sale followed a late-1980s feeding frenzy that saw most financial services groups – including Prudential, Royal Life, Guardian Royal Exchange and General Accident – gobbling up estate agency branches for anything up to £500,000 each.

Insurers, and many building societies, viewed estate agencies as key to the distribution of mortgages, endowment policies and insurance. The housing market recession of 1988 put paid to that dream.

Ironically, Lloyds Banking Group failed to learn from the experience: five years ago, it disposed of its 218-strong Halifax estate agency chain for £1. Lloyds said a strategic review had “concluded that an estate agency operation is no longer integral to its business model”.

What is central to the story, as with almost every insurer’s doomed forays into various loss-making financial ventures, has been an attempt to buy distribution. 

That is the only way of looking at Standard Life’s recently announced purchase of Pearson Jones for an “undisclosed sum”. The deal will deliver barely £1.1bn of assets under management to Standard Life – a flea bite compared to last year’s purchase of Ignis Asset Management for £390m, which added some £60bn to the insurer’s asset base.

What amazes me is the apparent U-turn in Standard Life’s thinking. Barely four years ago the insurer’s then distribution director, Stephen Ingledew, whom I first met in the early 1990s, when he worked on the affinity marketing side of Frizzell – a firm that provided IFA services to trade unions – talked of wanting to put “clear blue water” between his company and the provision of independent financial advice.

Back in late 2010, Standard Life jettisoned its 15 per cent holding in 2plan Wealth Management and also disposed of its 20 per cent stake in stake in RSM Bentley Jennison.

Today, everything has changed, apparently. Standard Life now sees a hitherto unseen demand for financial advice, driven largely by the pension changes introduced by the Chancellor in last year’s Budget.

Who knows? The company may be right. My own view is the road to buying distribution is littered with expensive mistakes.

If you don’t believe me, think of Millfield, Berkeley Berry Birch or InterAlliance. Back in 2003, Millfield attracted Aegon, Friends Provident, Norwich Union, Scottish Widows and Skandia, who between them put £17m into the company – despite losing almost £7m the previous year.

InterAlliance racked up a further £24m of losses in 2002, despite raising £32m in the same year. The following year, it raised a further £30m-odd from the same companies as above, minus Aegon and plus Gartmore and Merrill Lynch – then issued another profits warning a few months later.

Meanwhile, almost at the same time, the same insurance quintet dug deep in its pockets towards Berkeley Berry Birch’s own £20m share issue, despite the firm making losses of £39m. 

Oddly enough, the Berkeley Berry Birch chairman at the time was – yes, you’ve guessed it – Stephen Ingledew, who went on to greater things at Barclays and then Standard Life.

It is not as if Standard Life has not learned its own lessons about getting involved in IFA businesses. Back in 2005, it bought a 20 per cent stake in the Tenet Group network.

At the time, this was the company’s first acquisition of its kind, pitching it alongside other Tenet’s shareholders – Norwich Union, Friends Provident and Aegon – who each increased their stakes to around 20 per cent in light of the deal.

At the time, Standard Life declined to state how much it paid for its stake in Tenet. However, Trevor Matthews, the company’s life and pensions chief executive, was quoted as saying: “Whichever way you look at it, Tenet is an excellent investment opportunity for Standard Life.”

This is arguably not the case. Tenet has occasionally turned in profits and was involved in buying the rumps of Berkeley Berry Birch and InterAlliance as they went under water.

The fact that Standard Life has not bailed out yet reflects a desperate commitment to distribution above profits.

A roughly similar story applies to support services firm Threesixty, bought by Standard Life in 2010 – again for an undisclosed sum. Threesixty reported a pre-tax profit of £195,000 in 2013, an almost identical £191,000 in the year ending 2012, up from a £86,746 loss in 2011. 

At one level, none of this really matters. Advisers will go on selling (sorry, advising) and consumers will get end up with products they need (or, in some cases, don’t need). Life goes on.

But those of us who have watched this game play out time and time again, with insurers and advisers involved in an endless merry-go-round of acquisition, followed by value destruction, followed by disposal and reacquisition, are starting to wonder if it isn’t time to come up with a new strategy.

Nic Cicutti can be contacted at



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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Nic, I knew if I waited long enough I would find some tiny area, some oasis in the journalistic desert where we might both sit and sip at bottle of Evian.

    In short, for one I agree with you.

  2. Indeed, a very sound and well-argued article by Nic Cicutti, which is presumably why he slipped that bit in at the end about advisers flogging products that consumers don’t need to restore the balance.

  3. For those who ever bother to read my ranting’s will know how much I disparage the large Life Companies management ‘expertise’.

    As I have previously said their business models often bear a close relationship to the Hokey Kokey. (In, out, shake it all about).

    I am rather pleased that Nis has at last highlighted this.

    @Sascha Klauß
    I’m afraid that in fact Nic has indeed hit another nail on the head. It has been the life offices that have conned and wound up advisers into flogging their often dubious products. Unfortunately too many advisers come from a Life Office background and swallow this guff whole. Cynicism is in very short supply.

    This has been the case in the 30 years I have been in this industry and I see it continuing with respect to the latest pension provisions.

  4. Never mind the last piece of abuse-Nic probably couldn’t resist it (habit of a lifetime, and all that).

    Could not agree more with the tenor of the article. And there is another kind of risk involved in activity of this kind. Anyone remember Roger Levitt……..?

  5. My biggest fear from all of this is the conflict of interest between a tied adviser and a client – given that a tied adviser is acting for his employer and not for the client. I therefore seriously question whether initial disclosure is clear enough. … I’ve seen leading tied websites sing the merits of being tied but I suspect clients would look at it very differently if the facts were outlined.

    I’ve just taken on a client who has a Barclays plan (now Reassure if my memory serves me) who was being ‘sold’ an annuity by L&G – non advised, fill all the paperwork in yourself Mr Client, our solutions are limited to L&G annuity. The commission was hidden away and was significantly higher than my IFA, whole of market, I do the admin for you ‘fee’ – the only reason he contacted me was because he got stuck with the paperwork – i.e. he didn’t reach the ‘right’ conclusion for the right reasons (IMHO) and that scares the hell out of me.

    In the majority of cases where cosy deals are struck between providers or where it’s tied ‘advice’ from experience the only winners seem to be the providers involved.

  6. Apart from the silly quip at the end I largely agree with this analysis, good subject nicely done. Small point – having been at one of the companies mentioned at the time (and in a position to know what was really going on) I think it’s very relevant but a little simplistic, i.e. there was more to what was happening.

    The key point here is distribution and how you make that work. I distinctly remember when the banks first entered the distribution arena. Working at a direct sales operation at the time, the feeling was that if they did it right they would clean up. It soon became clear they didn’t know how to do it right and we ended up where we did. In many ways the same applied to most of the direct sales operations in that failed to adapt to the changing landscape. But SJP got it right.

    If providers can emulate SJP with their own variation that sticks to the basics then they could win too. I wouldn’t bet on it though because I’m not sure they understand what the key ingredients are and buying an existing business isn’t on the list.

  7. Quick as I am to have a pop, I also recognise hard work and there is a lot of info that has gone into this article, nice one (and no, I’m not trying to be patronising :-)).

    The swipe towards the end is your signature tune, so that’s OK too!

  8. @Nic – The advertising team is going to be very annoyed with you as you’re not going to get many post on this one asd for once you make a lot of sense WITHOUT winding anyone up (too much) in the process.
    Having worked for two Bancassuers (the first after it ditched Independence and compulsoryality migrated all bar 10% of the advisers without the option of redundancy) I agree with Grey area. Than banks could have cleaned up on very good advice, but focused too much on sales when their advisers were initially at least mainly ex branch assistant managers (I wasn’t I was a lowly clerk who jumped up to assistant manager grade as a result of the change to advising from safe custody/foreign exchange and lending)who had always been told to focus on SERVICE first, which leads to sales/purchases without any need for “hard sell”. Most of us saw the light after the change from Independent to Tied (aided by the sudden change from them telling us with profits was best to unit linked was best and repayment good to interest only/endowment good) which many of us were questioning. Nearly all of my peers who left are now IFAs or whole of market Restricted now and are not willing to be bought or have the wool pulled over our eyes for a second time.

  9. Let’s not forget that Standard Life were one of the founders of CAMIFA (Campaign for Independent Financial Advice) before shafting their partner companies and doing a deal with Halifax.

    Let’s not forget Standard Life bought huge swaths of the corporate GPP market by offering ridiculous commission deals to IFA, only to later shaft them cutting back on the commissions on those same schemes.

    Don’t trust the Life Cos, Don’t believe a word they say.

  10. Problem is that the folks at the top of the big corporate piles, just don’t get that trying to dictate to any animal that bears the word “broker” or similar in it’s job title, is like herding cats.

    They seem to think that if you say “use us, we own the company”, all will be well. Ha! Back in the 1980’s I was a building society manager, and the bosses couldn’t understand when they acquired an estate agent, why the mortgages didn’t just flood in. The reality on the ground of course was that each broker had to quote the best rate they could to win the business – quote your “owners” rubbish rate, and the agents next door just hoovered up the business.

    Big firms generally just seem to strugle with the concept of independent thought in this area. I despaired of my own Society’s approach (and indeed unsurprisingly watched the old agents a few years later repurchase their firm for peanuts). Same thing with insurer’s buying IFA’s – unless they can offer a market leading product they won’t secure the business. And of course if you CAN offer a market leading product, why bother buying the broker with all its attendant risks, when the business should then flow in anyway…..?

  11. @ Phil Castle: you are mistaken if you believe the advertising team at Money Marketing rub their hands with glee at the prospect of being able to sell ads against your comments at the foot of my column.

    As for my comment about sales/advice at the end of the piece, I thought it was fairly restrained.

  12. Interesting to see that some IFAs welcome a return to the good old days of the ” Marketing Allowance”, and are happy to sell their independence for a price.

    Quote from an IFA – ” If x company gives me 1 million I will outsource all my investments to them ”

    Reply ” You will not be independent and will have to disclose to your clients”

    Response ” there must be a way round that ”

    The old school salesman is alive and well and open to offers, I am not sure that at this scale the providers would make any money out of trying to buy distribution.

  13. You are right Nic – we have been here before. I can’t remember who it was that was reported as buying up estate agencies at a third of a million a branch and then selling the businesses back to the same estate agents at £33,000 a branch.

    Those estate agents might have been rubbish at selling endowments but you cannot fault their ability to flog property at inflated prices to greedy fools!

    I think the involvement in Threesixty tells us all we need to know. They are going round in circles!

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