Adviser platform assets reached £378bn at the end of Q2 and our latest UK Adviser Guide, published this week, details a sector with as many moving part as ever. We’re seeing the impact of the pension freedoms driving new assets onto platform which is making up 77% of net sales – a trend that isn’t showing signs of trailing off yet.
And then there’s M&A and we’re constantly asked whether recent acquisitions will herald the long anticipated platform consolidation. We don’t think it’s as binary as that.
We’re tending to see examples of vertical integration strategy rather than a classic consolidation cycle where the big fish eat all the little ones in the pond. This is logical given the valuation multiples of vertically integrated business like St James Place (PE of 28x) and Hargreaves Lansdown (PE of 36x).
In this context what else drives valuations? Profitability is a far more important metric than assets, which helps to explain different price points for the likes of Towry versus Cofunds. That means CEOs are looking for synergies that they can exploit to create value. Tech and admin are the key areas in the platform space and we will see whether Aegon can benefit from their considerable investment in new technology, at scale, as they absorb Cofunds. There’s also the question of whether Standard Life can efficiently fold in the Elevate platform, given that the underlying technology is out of the same stable.
One of the things that external investors like about the wealth sector is that it isn’t hugely capital intensive with the exception of the big bang replatforming moments. It looks like the prospect of these costs and upheaval has been a disincentive to M&A up until now and the incumbents have been forced to go ahead and make those tech upgrades to firm up their businesses. With £128.18bn assets moving to new underlying platform technology at the moment, the sector might look more attractive in the future.
HL CEO to step down
Hargreaves Lansdown’s first era of civilian government is drawing to a close as Ian Gorham prepares to stand down from his seven year tenure as CEO. AUA has increased from £11bn to over £60bn today. He leaves the company in a market leading position not only in terms of its size but in key future-looking areas. An impressive tick list including:
- Exploiting the pension freedoms – currently the D2C market leader in drawdown
- Leading digital footprint (and mobile visits overtook desktop visits in July!)
- Growing workplace savings business – AUA up 36% over the last year
- HL Savings to launch this year bringing saving and investing together on the platform
- Leading robo – £311m on HL Portfolio+ means it’s not far off being the biggest robo in the UK (we’ll have a better idea of that when Nutmeg publish accounts later this month)
Mediterranean fund distribution
Italy and Spain are the fastest growing fund markets in Europe with healthy platform sectors and good opportunities for foreign fund managers. We’re publishing our latest European Fund Distribution update on them today and we’re amused to observe cultural differences across the EU influencing the implementations of MiFID II. Don’t expect RDR in Milan and Madrid!