The success of any business is inextricably linked to how it gets its product into the hands of customers. The pensions and investment space is no different. Modern providers have a variety of distribution channels available to them, whether they are advised, on platform, or direct-to-consumer.
Providers have taken starkly divergent strategies to distribute their products. Money Marketing has taken a look at some of the leading players for hints of what the future might hold.
‘Buying up’ distribution
It is hard to deny a recent trend towards providers increasing their distribution potential through acquiring advice firms.
The four deals struck by Standard Life’s restricted national arm 1825 in the first half of 2016 may have attracted the most attention, but Old Mutual also added 22 advisers to its new national advice division Old Mutual Wealth Private Client Advisers over the same period. Schroders also took a “significant” stake in network Best Practice last month.
Schroders explicitly said it was not “buying up” distribution with the Best Practice deal, while Standard Life also says product sales are not the primary driver behind 1825’s expansion.
Standard Life Savings chief executive Barry O’Dwyer says: “1825 was more about the pension freedoms: we saw it from the perspective of demand for advice. Bluntly there wouldn’t be the capability unless people like Standard Life came and provided advice. I don’t see it as a distribution route, it’s providing advice. 1825 is providing advice to workplace pension scheme members that don’t have access to an IFA.”
Standard Life Investments also purchased asset manager Ignis from Phoenix Group for £390m two years ago.
Standard Life’s 2016 half-year results – which show an increase in operating expenses of 3 per cent in part due to “expanding distribution” – say “as well as our own distribution, we benefit from leveraging our strategic partner relationships…in the UK with Phoenix Group and the wider Standard Life Group”.
We are wedded to face-to-face advice but that does not mean we do not have digital or robo in our business and do that through advisers
O’Dwyer does not believe trends in distribution towards acquisition and the building of restricted or tied advice businesses by providers will lessen the level of choice for clients.
He says: “If you take 1825, obviously it’s restricted but its restric-ted in that we use the Standard Life Wrap. Going back 10 years if you were restricting to a single set of products from a single company that would feel like one hell of a restriction. But now on the wrap you can choose from thousands of products. The nature of restriction has changed massively.”
However, O’Dwyer says Standard Life’s recent acquisition of Elevate will help it distribute products through the advisers who use it.
O’Dwyer says: “From our perspective our core business is providing technology and platforms to IFAs to help them service their clients. That still is the heart of our business. Elevate just shows how critical that is to what we do. That will remain the core of how we do distribution.”
Growing the adviser base
While the firm has not made any advice firm acquisitions, Aviva is looking to build its own advice arm organically and has gone further than most, opting for tied rather than restricted distribution of its products through its advisers.
Initially, the in-house team will advise on Aviva annuities and drawdown products only, although some third-party funds will be offered alongside Aviva Investors funds when investment advice comes online.
Given the nature of the restriction, it could be argued this will be an effective way to re-establish a distribution channel Aviva scrapped in 2013. Indeed, in Aviva’s half year results for 2016, part of its cautionary statements noted the company’s “reliance on third-party distribution channels to deliver our products” was one of a range of factors that could cause an expected hit
Either way, the act of giving advice seems key to all three strategies, in particular Old Mutual, which is said to target the proportion of funds that advisers should put through Old Mutual Global Investors.
Old Mutual Wealth chief executive Paul Feeney has denied this.
Old Mutual Wealth chief distribution officer Richard Freeman says: “Over the next two to three years our strategy is around advice and around distribution in advice. We believe passionately in face-to-face advice, be that through an IFA, restricted or our Private Client Advisers. We are wedded to face-to-face but that doesn’t mean as we take that journey we don’t have digital or robo in our business and do that through advisers.”
The Consulting Consortium advisory director Phil Deeks says such vertically integrated distribution models will continue to catch the regulator’s eye. He says: “Certainly in terms of vertical integration the FCA’s formal position is they are agnostic to it, they recognise it can be a force for good, with economies of scale and a focused proposition, but the key challenge is, hand on heart, is the only reason firms are doing it to secure flow of funds into their products? Because of that there is a large inherent conflict of interest in the business model.”
Another advantage of owning advisers as part of your distribution strategy is the funds they bring to your platform. Around 16 per cent of Old Mutual’s UK platform sales are generated via its Intrinsic network advisers, for example.
Aegon in particular has been focusing on its platform business. Having launched a restricted direct-to-consumer platform in 2014 and acquiring Legal & General-owned platform Cofunds this year, it is now looking for platform profits to account for some 80 per cent of the group’s total.
Aegon chief distribution and marketing officer Mark Till says this will continue to be the firm’s approach to distribution in the near future.
He says: “The strategy is to be a scale specialist investment platform business focused on helping advisers and the benefits that come with being substantial in size in the market. What we are not doing, and we don’t believe it’s the right thing for Aegon, is to enter the distribution landscape through acquisition or a restricted proposition. We perceived that puts us in competition with advisers and we are not keen to do that. Our job is exclusively to help advisers grow.”
Its platform focus may in a way act as a distribution tool, however, and Till acknowledges there may be scope to increase the number of Aegon products on its platform moving forward. “Aegon does possess a range of investment propositions, our core risk range being an example, that are available on the platform, so we will distribute some products as a result of that. But at the moment it is not been a substantial focus of our business. The focus is on the ease of use advantages of a platform for advisers. Long-term there is an opportunity for more investment-based solutions on the platform.”
Taking out the middlemen?
For Royal London, direct-to-consumer sales for this year were £165m, up from £34m in 2015, and the firm’s accounts say it will “continue to seek further strategic distribution partnerships with consumer orientated organisations”.
Royal London proposition and strategy director Ewan Smith says advisers still have a critical role to play in distribution, however.
He says: “With providers in the D2C space the danger there is there’s not so much a conflict of interest, it’s really the fact people need, in relation to pensions and investments, to make holistic decisions about their circumstances. That really requires professional advice. When we are designing products and services it was all about how do we help the people get advice from a stronger, more professional core of advisers, but who aren’t servicing enough customers. It’s how do we get people advice rather than how do we disintermediate and go straight to people.
“There’s quite a fine line, particularly with platform technology, of what an adviser is, what a distributor is, what a provider is. In a sense we are probably simpler than anyone else you speak to. We are fundamentally a product provider, not a distributor. In that world we have got to be very careful we are not just pushing complicated products to customers without the full service that’s needed.”