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Robert Reid: The battle to add value

Will recent industry mergers deliver benefits to clients in the long-term?

Advice firms have long been wrestling with their ability to add value

For some, this has meant a root and branch review, leading to a merger with other firms or joining a consolidator that has a proposition they feel they can easily align to.

But this process is no longer confined to advisers. Indeed, the recent merger of Standard Life and Aberdeen could be argued to have a similar purpose.

That said, I do wonder just how good a fit it really is. With the cost reported to be around £100m – and this is meant to be a friendly merger – I shudder to think of the numbers involved had it been a hostile takeover.

We are also yet to hear what will happen regarding logos. Given it cost the FCA £70,000 just to remove some wavy lines from its branding, the bill for Standard Life Aberdeen could be well into seven figures.

But perhaps more importantly, does it not seem likely Standard Life could opt to focus on investments and offload the platform to another provider along with the life company? This would mean far more job losses than the 800 already reported.

It could also provide a catalyst for the consolidation race. For example, the provider that takes on Standard’s life company could then focus on Old Mutual as its next target before it spends another fortune on replatforming.

It is clear the integration of Axa Elevate has not been straightforward and the thought of having to manually replatform could be enough to encourage Standard Life Aberdeen to focus more on being a major international investment company.

Another question looming is what Scottish Widows will do regarding its contract with Swip’s new owners Aberdeen following the merger with a rival firm. It could mean a significant outflow of funds, which given the amount that has already left Aberdeen would not be helpful at this juncture.

Of course, to keep some balance, it is only fair I mention Standard Life’s Gars fund, which has also seen significant outflows recently. Considering the noises from various employee benefit consultants, more could well follow.

In some ways, absolute return is the next century’s version of with profits. The focus on a limited range of funds always tempts providence and its frailty may damage the prospects for this merger.

The concept of joint chief executives does not fill me with confidence, either. What happens if they are diametrically opposed to a course of action? Would they toss a coin?

Despite the deployment of platforms and the coming of robo, the inefficiencies of these companies remain. This merger may be the trigger that leads to a slimmer model for life assurance companies but the loss of jobs could be highly damaging.

As for clients? If the outflows continue it might be a while before we can see any benefits.

Robert Reid is director at The Ideas Lab


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