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 email@example.com