M&G tried to grow its own without the aggressive acquisition approach of its peers, and as the new boy on the block, it never achieved scale with these attempts. This left it solely with the independent adviser base that was using the platform when it acquired it – and leaving it with only reaping rewards from one third of the opportunity of its peers.
For a business like a life company, this is a serious challenge as the expectation from shareholders is to attain margins and returns that are beyond those of a platform in isolation.
This problem is magnified for a company such as M&G as it faces into numerous markets offering higher margins for capital investment than the platform could establish.
The shareholder expectation is therefore for much higher margins than can be sustained in the platform market, where it is competing against true platform providers, such as the likes of Nucleus, with much thinner margins.
Seeing M&G enter the bulk annuity space, like Royal London before it, attracted by the ability to achieve high margins with a much lower spend on elements such as technology, shows that this is a much easier sell to shareholders, than continuing to spend to sustain the wealth operations.
This type of distraction poses no issues to the likes of Quilter and St James Place, with their utter commitment to the wealth market; but there also should be no concerns around Aviva. While it does play in these other markets, it also has a further consideration that M&G has suffered less from – protecting its back book.
Aviva has a substantial back book of open architecture and own fund products that will see large blocks of customers reaching a maturity point over the next five years – that is a lot of embedded value for the business.
Given that for pensions, often more than 60 per cent of movements off the book are advice driven, the need for a platform and advice service to support this is understandable. Aviva has been bold on ensuring it has this covered, and gives comfort to the shareholders from a very different direction.
To sum up, are we likely to see the vertical model disappear? No, certainly not for those that have invested and supported it over the past couple of decades, but it is a tale of caution for those that would enter it and that have shareholders that will be keen to optimise the use of capital.
