Standard Life is to strengthen its direct offering with an execution-only platform but says it is still passionate about an IFA sector which will provide it with 90 per cent of business.
Following recent comments from chief executive David Nish suggesting that the firm was going to increase its direct business, take to market director Paul Matthews says IFAs will still be the firm’s primary focus.
He says 4-6 per cent of its business is currently direct and suggests this will not increase to higher than 10 per cent over the next five years, the furthest point in Standard’s future strategy plans.
He says: “I have been 21 years in this company and 21 years looking after intermediaries. We are a provider but we are passionate about this industry and passionate about independent financial advice.”
Matthews says the greater focus on direct business is due to a belief that consumers will increasingly want a mix of execution-only and advised services, especially the younger generation.
The firm announced a £200m investment earlier this year and Matthews says this is going into technology across its direct, corporate and intermediary channels.
He says the firm wants to offer simple solutions to employees whose business Standard would otherwise lose if they switched firms and transferred their pension or if the adviser no longer wanted to advise them.
Matthews says the firm’s work with IFAs using its wrap has shown advisers are cutting back on their client bank and segmenting clients to focus more on wealth management.
Distribution director Stephen Ingledew says firms which have segmented their clients are concerned about the TCF implications of abandoning them and Standard will offer its direct technology as a service that advisers can brand and use to look after such clients.
Ingledew says if direct customers say they need more complex advice, Standard will always put them in touch with an IFA as it is “not something we would want to provide ourselves”.
Matthews says the execution-only platform will launch early next year, offering a simple pension followed by an Isa. He says the firm has not decided how restricted the range of funds will be. The firm will charge a fee for the tax wrapper but has not decided its strategy on fund charges and any commission payments received from fund firms. Matthews says Standard will not look to offer funds at a discount to charges offered by IFAs.
How will it promote this service and attract direct customers to try to compete with the big discount brokers specialising in execution-only?
Matthews says the main focus will be looking to move existing customers on to the platform. He says 1.5 million of the company’s five million customers do not have an IFA.
He says the provider has a small direct client bank team of around 50 people which will not grow significantly in size.
Ingledew says: “Individuals move on from employers, they may have limited wealth and not enough to sit down with a professional adviser, so what do you do with them? It is more about how we capture what we have at the moment rather than going out with a massive brand campaign.
You will not see us doing an Aviva with our brand.”
Matthews says the vast majority of the firm’s £200m spend is being invested in the intermediary market through wrap development and a “facelift” for its Adviserzone extranet.
Standard has 800 adviser firms on the wrap, with 50,000 clients and around £6bn of assets. Matthews says the platform is taking in £1bn of new money a quarter and hopes to have 1,200 adviser firms on the platform in the next year.
He says the majority of the investment is going on the firm’s corporate employee platform which has been developed following the £24m acquisition of flexi-benefit provider Vebnet two years ago. The integrated pension and flexi-benefit proposition will launch in the first quarter of 2011.
Ingledew says the introduction of auto-enrolment and Nest is “a huge opportunity” for IFAs. “This is a chance to demonstrate their professionalism. Employers are much more used to paying fees than individuals. It is a time of change and in a time of change you need professional advice. What they want to go in with is not just a narrow pension offering but a more holistic offering with a range of benefits.”
Standard recently divested itself of stakes in national IFA firms 2Plan and RSM Tenon. It still owns support service firm Threesixty and has stakes in support services firm SimplyBiz and Tenet, which has a support services and network arm.
Ingledew says the provider decided to take “defensive” stakes in the IFA sector four years ago but, after looking again at its IFA strategy, decided that the stakes represented a conflict of interest. “We decided that we needed clear blue water between what we do as a solutions and service provider and what advisers do in delivering face-to-face advice,” he says.
Ingledew points to “issues” at the distributors owned by Aegon – Origen and Positive Solutions – and Axa, Bluefin, and says there is “a cultural mismatch” between providers and advisers within such relationships.
“IFAs do not want to be suffocated by the big institutions and feel they thrive best when they have independent control about how to run their business. Our strategy is we are a business that works through advisers to provide solutions to their clients,” he says.
Does Standard see a significant amount of its business coming from a restricted advice route after 2012? “We do not see our strategy for restricted as ano-ther multi-tie ’rush for the hills’ approach,” says Ingledew.
He says he believes that most advisers will remain independent although some may offer a restricted service alongside their independent offering.
Matthews says if the requirements for independence bec-ome too onerous and start affecting the service offered to clients, more advisers may bec-ome restricted. He says another focus for Standard will be looking to help with the research, governance and due diligence that will be required of IFAs. The firm recently launched two new guided architecture solutions, Quality and Choice, offering a selected number of funds in different classes, and MyFolio, offering a range of risk-based portfolios. Both are overseen by a governance committee made up of members of Standard Life staff and two outsiders, including former Gartmore head of multi-manager Bambos Hambi.
Matthews says: “IFAs will want to know the fees being charged are as appropriate as possible. Our guided range is about providing solutions to some of the grunt work that can be quite costly. We want to help with some of these research services so more of the fee relates to hours spent with the client.”
Looking to the future, he says that the firm will continue to invest millions of pounds in its wrap platform. When will the firm start to make back some of its considerable wrap investment?
Matthews says providers can no longer price on product profitability and the only figures that matter are company profitability. “It is a completely different mindset, it is not about the products we sell any more.”
If there is wrap consolidation, will Standard look to acquire? Matthews says the firm has an organic growth strategy alth-ough it would look at any attractive deals. Ingledew says he would be wary of any acquisitions as advisers control the assets and they would not be tied in.
Matthews says he believes the FSA will not back down on its view that payments between fund providers and platforms should be banned despite strong lobbying from Cofunds, Fidelity FundsNetwork and Skandia.
He anticipates a big flow of money from the traditional players to Standard’s wrap once re-registration is made compulsory as many advisers using the wrap have legacy assets they would like to transfer.
He says most of the wrap competition comes from smaller players which can offer a bespoke service that Standard cannot. However, he questions how many players will remain in the market as investment and capital adequacy demands increase.
Matthews also has concerns about big distributors launching their own platforms due to the continuing investment that will be required to deal with changes to UK and European legislation.
Will the Threesixty deal lead to an increase in Threesixty advisers using the Standard wrap? Ingledew says the motive behind the Threesixty acquisition was to support an important part of the IFA market, not to flog its wrap.
Matthews says, if anything, he anticipates the deal being an obstacle due to the support service firm’s advisers’ “pride in their independence”.
Ingledew forecasts a future IFA landscape dominated by small regional IFA businesses with six or seven firms using a multi-disciplinary model to offer a broad range of services, many relying on bigger supp ort service companies. “It is better to support the market to thrive rather than to control them,” he says.
He believes the success stories will be small independent firms rather than big networks or restricted bancassurance propositions. “Big is not always beautiful,” he says.