Some might say Transact chief executive Ian Taylor is taking a stance of cautious optimism as he continues to prime his business for sale but is wary of over-hyping it. Late last year, the platform carried out a share buyback in which it purchased 4 per cent of the business from shareholders. It also moved to restructure the group, bringing all parts of the business under a new holding company.
Taylor says this forms part of the long-term goal of either selling the business or floating on the stock exchange. But he adds that no sale is imminent.
He says: “In terms of the way we have structured the business, it has always been done gradually and obviously with an exit in mind. The change to the holding structure is a step in that direction but I would not suggest it is an indicator that anything is imminent. As the company has got bigger, it has to be structured more carefully.”
Asked what form the exit would take, Taylor is not betting either way.
“It will depend on circumstances and who approaches us,” he says. “I don’t want to speculate too much about it because it may set expectations which are not met.”
With profits up 14 per cent to £16.9m for the year to the end of September, Transact is the most consistent money-maker of the independent wrap platforms.
This is no small achievement – the firm was created nearly 15 years ago by three men in a two-room serviced office above an Italian restaurant in East London hipster hotspot Shoreditch.
Having been there from the beginning, Taylor is intent on seeing out his career with Transact, arguing that other parts of financial services do not appeal. “I would like to stay here for as long as I possibly can,” he says. “I’ve made a lot of friends here and as far as I’m concerned it is personal.
“I always liked the ethical proposition because we were doing something where no commission was involved. We were lucky that we found a good number of advisers that already worked that way, which gave us the momentum to begin with.”
Having spent the earlier part of his career in asset management, however, Taylor says he still takes an interest in the sector beyond the immediate transactional relationship the business has with fund managers.
He argues while platforms have disrupted the traditional life company role in retail investment, little has been done to trouble the status quo among asset managers.
Parts of the distribution chain have changed markedly since Transact came into the market, Taylor adds. “The traditional life industry has been trashed as a direct result of platforms, which is why you’re seeing life companies build platforms. The financial advice industry has changed dramatically.
“But the asset management industry has not changed a great deal. They will say they have because they will say pricing models have changed and they have had to deal with platforms. But the gap of the future is in asset management.
“People often say there are a lot of platforms, but how many asset managers are there? It is ripe for someone to come in with a new model. Some of the American firms that have come in have shaken things up already but there is still some way to go.”
Whereas platforms typically reduce charges as clients increase assets on the platform, asset managers tend to operate a flat fee charge. “The fund managers don’t say ‘because you’ve got to £1m you pay less’. Everyone pays the same. But in a mutual fund, the number of clients in it doesn’t make a huge amount of difference to the cost of running it.”
By comparison, Taylor argues, the platform sector is already too evolved for new entrants to develop propositions that could pose any real threat to established players.
And he believes the market is already saturated, with platforms offering broadly similar services. “There are already very few that can sufficiently differentiate themselves from the market. There aren’t very many interesting platform propositions, they are all largely the same but a different colour.”
One area in which platforms have diverged significantly is their handling of rebates. Last year a combination of tax changes and FCA rules on platform-retained rebates and cash rebates prompted several of Transact’s rivals to move completely to clean share classes.
Although it has always operated an unbundled charging structure, Transact continues to process rebate-paying funds. It pays those back into client accounts in units of cash funds, unlike most of its competitors, which choose to pay rebates back in fund units.
Taylor argues moving exclusively to clean could have unintended consequences.
He says: “We tried to do something that gave clients and advisers as much choice as we could. It is not our job to make proxy investment decisions for clients. So we came up with a process that allows people to switch into clean share classes if they want to but we won’t compel anyone.
“Where rebates continue to be received we are re-investing them into units which are as neutral as they can be.
“A lot of platforms seemed to move to clean, but that introduces more complexities around, for example, whether the clean is cheaper or more expensive.
“And what happens in the future? There will be a lot of future flows onto platforms which will be units that clients already own. There are billions upon billions of those units still in issue and they are not going to be clean units.”
Only with the benefit of hindsight can a judgement call be made on whether Taylor’s predictions come to fruition.
But having set the trend for wrap platforms in the UK as early as 2000, he has something of a track record for judging the future direction of the industry.
What’s the best bit of advice you’ve received in your career?
Engage brain before opening mouth.
What’s keeping you awake at night?
The irrational behaviour of those in power.
What’s the most important business change you’ve made in the past year?
We made all the really important changes 15 years ago.
If I was put in charge of the FCA for a day I would…
Find myself in the only other job in financial services that I would relish.
Any advice for new advisers joining the profession?
Be proud that you are joining one of the essential services.
Lives: Lincolnshire and London
Education: MA in English, Peterhouse, Cambridge
Career: 1999-present: Managing director, Transact
1992-1999: Marketing manager, John Govett
1987-1992: Business planning manager, Royal Life