(Journos reading this, any part of it is attributable if you want it.)
So before we get into this, I need to tell you that the lang cat has been doing a wee smidge of work here and there on matters pertaining to the acquisition (posh) so if that bothers you, stop reading now.
If it doesn’t, wheeee! What a day this has turned out to be. Normally I’d be writing up OMW’s results about now – a third of flows coming through the restricted arm and £225m on replatforming so far, wow, but BAWS TO ALL THAT.
Fresh from scarfing up BlackRock’s DC book, Aegon now takes on the platform industry’s biggest problem child, Cofunds. In no particular order, here’s what I think (important to say that no-one from Aegon or Cofunds has seen this before publication, by the way).
On balance I think this is a Good Thing. I can hear the naysayers coughing up a lung already, but none of that matters too much. Haters gonna hate. The only thing that does matter is that Cofunds desperately needs investment in its tech infrastructure and, for reasons known only to itself! L&G hasn’t been willing to put that in. Aegon is willing, and that’s welcome news for 800,000 clients and 17,000 users in 6,000 firms, on Cofunds.
Cofunds, retail book and the IPS book which has Nationwide et al on it will shift, over time, to an upgraded version of GBST’s Composer platform (note: GBST is a client of the lang cat, we’re conflicted ALL OVER the place on this). This will give users increased asset ranges to be sure, but much more importantly it’ll allow a far more integrated pension proposition and it’ll get rid of a lot of the swivel-chair processing that’s a fact of life with Cofunds and FAST at the moment. It’ll also make GBST the biggest platform tech provider in the UK, just ahead of FNZ.
Is £140m the right price to pay? It seems to me there is no really meaningful way to price a business like Cofunds; Aegon isn’t buying it because it loves the profit stream, the tech or even the proposition all that much, I don’t think. It’s buying it to complete a huge transition project that Adrian Grace and team have been working on for the last 5 years. In much the same way that Standard Life worked hard to try and change its DNA from lifeco to long term savings and investment business, (repeat until blood runs out your nose), Aegon is transforming itself to a platform and protection business. The divestment of the annuity book was a big part of that story. It’s a hell of a transformation – and now that the building blocks are all there, the challenge is for Aegon to make it work.
This is a fascinating moment in the platform industry’s journey. Every commentard including us has chirruped that platforms are a scale game for years, but scale has sort of meant somewhere between £10bn and £20bn depending on what kind of organisation you are. Aegon/Cofunds £98bn-ish is split across retail, institutional and workplace, to be sure, but to me it clearly redefines what scale means in the retail market – now somewhere north of £50bn.
It’ll be really interesting to watch outflows – anecdotally a lot of the offs from Cofunds we’re hearing about are about advisers moving to restricted or vertically integrated propositions. That’s one of the potential challenges to any scale player that doesn’t have its own version of Intrinsic or 1825. Hard to see it really denting the numbers in this case though.
One thing we’ll all be watching very carefully is the institutional book (to be clear, the pure insto book for wealth managers and so on, not the IPS book). Aegon has no heritage in looking after stuff like this, and Composer doesn’t either really, in the UK at least. So expect the insto book to stay pretty much untouched for a while; there is an open question for Aegon to answer as to whether it can run this huge book successfully and maybe, gasp! even make a turn or two on it.
ARTHUR, FETCH MY REPLATFORMING PANTS
Talking of tech and so on, this is clearly going to be the mother of all replatforming projects. Aegon’s got plenty of experience in moving stuff from the back book to ARC, but this is a whole new bucket of entrails. Cofunds has done all sorts of business over the years; much of it very low value (there’s big stuff too) and joining all the dots will be a huge deal. I think it’s a good thing that David Hobbs is staying to run it, and it’s also good that Rich Denning, ex Selestia and Novia, is doing the ops on the Aegon side. Everyone is going to have to have on their very best replatforming pants; I’ll come onto this below.
It’s worth mentioning that Aegon says the transfer is planned to be done with the minimum disturbance in terms of contractual arrangements. What that means is that terms and conditions will of course change colour, but according to Aegon no-one is going to be charged more than they are just now, no-one will be forced to change investments and so on. The pension scheme for those in the Cofunds Pension Account may be a bit trickier to deal with, but the principle is that advisers shouldn’t have to do a suitability review.
They, you, might choose to, and that’s perfectly right and proper, but there won’t be a contractual need to. That’s a hard line to walk! I think SL and AXA are probably trying to walk it too! so we’ll have to watch carefully and see how it pans out.
WHAT IT MEANS FOR ADVISERS
So strategically this all works. Cofunds gets an owner that actually wants it and Aegon gets to be the biggest kid in the playground. But does it work as well from an adviser’s point of view?
17,000 users woke up today as Cofunds users; once this all goes through and the transition takes place they’ll be Aegon users (even if the Cofunds brand name stays). Not everyone’s going to be happy with that. Aegon has form in terms of making advisers grumpy when it comes to back books and client relationships. That kind of thing has to be put firmly in the past and Aegon is going to have to work hard to gain and keep the trust of many advisers who wouldn’t select it normally and in fact didn’t select it at all.
But I don’t think there’s any need for immediate action. No-one knows what the post-takeover proposition will look like yet. I’ve got theories and so will everyone else, but that’s all they are for now. If we phrase this deal as massive company sells massive platform to massive company, then that’s about as much as we can work with just now.
In just the same way as the AXA/SL deal, there is no immediate change (regulatory approval hasn’t even come through yet). Clients are not in jeopardy. Advisers reading this who hate Aegon, fair play to you, but this is a time for cool heads. Maybe have a moan on the comment boards or something. Oh, you already have!
As ever with things like this, I’ll sign off with a point addressed to the Cofunds / Aegon management.
Lads, you’re allowed one (1) day of back-slapping on getting the deal done. It’s a good deal, I think. Once that’s over, it is absolutely incumbent on you to make sure that advisers and their clients, not your clients, theirs are kept up to date and treated with courtesy and respect. The transition from old tech to new will be huge, and thorny, and full of unexpected bumps in the road, just ask anyone who’s tried it. Don’t try to gloss the difficult stuff; suck it all up and be really honest with advisers. It may cause pain in the short term, but it’ll be worth it.