Following demutualisation in 2001, Friends Provident embarked on the path to become a top-five player in the life and pensions market. Christopher Salih takes a look at how far down that road the group has travelled
Friends Provident is a group with a lengthy pedigree in the life and pensions industry. From its humble Quaker beginnings in 1832, the group is now a FTSE 100 listed company and one of the UK's top 10 life assurers. Its ambitions are far from humble, however, as it aims to be a top-five player in an already saturated life and pensions market.
The group started down this road after its demutualisation in July 2001. Friends Provident set itself a clear strategy of becoming a major force as both a life company and also as an asset manager through F&C. The latter's merger with Isis has catapulted it into the top five of asset managers with &131bn of assets under management. However, the road to dominance in the life sector has proved somewhat trickier.
Following demutualisation, Friends Provident made a number of acquisitions. Notable additions included Lombard International Assurances, Royal and Sun Alliance, Friends Ivory & Sime and perhaps, most importantly, F&C. Last year, however, has seen the group shift towards a focus on distribution as it agreed deals with Barclays and National Australia Bank.
Simon Clamp, head of UK distribution at the group, says: &This is has been a huge area for us in the past year. The growth of distribution networks has been part of the evolution of the marketplace. New regulations have seen a change in the distribution landscape, which has consequently changed the shape of the market.&
Clamp says 2005 was a very good year for the group, as it continued to grow in the majority of its areas of business. He says: &The fourth quarter results in terms of sales reflected the shape and success of Friends Provident, because it was up 40% in total. In the UK, it was both our service and range of funds that led to that result. We had strong pensions and investment sales across the board. The protection side was a lot of hard work because the housing market was largely subdued.&
On the product side, the group added a new facet to its pensions business with the launch of the 'Personal Range', a 50-strong range of funds from 17 asset managers. It was also compatible with the Government's new stakeholder regulations.
Clamp says: &There were lots of reasons behind the launch of the Personal Range. Firstly, it came in conjunction with events such as depolarisation and the use of multi-ties. It provided funds that offered a reduced annual management charge as the fund value increases.&
Clamp has acknowledged in the past that it is much more difficult to grow life businesses through acquisition. He says: &The priority is to work on our sales and grow organically, it is an achievement in itself to be a top-10 player in the UK life industry and our goal is to continue to grow faster than our competitors in a very competitive market.&
The success of the F&C business is vital to Friends Provident because the group manages many of its life and pensions funds. Clamp says: &It was a lot of hard work to integrate those two groups following the merger, but that hard work appears to have paid off through F&C's investment performance.
&We believe the merger and transition stage of F&C is completed and it is a case of bringing this business out to the adviser market and making them aware of the group's offering and capabilities,& he adds.
Despite F&C's broad product range, Friends Provident has - like many of its peers - concluded that it cannot offer a complete solution through one asset manager. As a result, the group has built strategic alliances to supplement its life and pensions business. One such area has been the group's Investment Bond, which has a range of external managers selected by OBSR (Old Broad Street Research).
Clamp says the Investment Bond is reviewed regularly: &We are always adding funds to that bond. We've been looking in particular at the cautious managed, distribution and property sectors. We currently have 14 external partners in that offering and we are constantly monitoring what it is they are offering and making sure their standards don't waiver.&
The group now has a total of 16 external managers on its pension's platform with no replacement for Citigroup, which was removed over a year ago following the loss of a number of analysts and a change in process. Clamp says that changes to the platform are not made lightly.
He explains: &We have a senior investment committee who look and monitor performance on a monthly basis. They look at a range of issues such as fund manager and headcount turnover, as well as other emergent risk trends. There is no change for the sake of change.&
Tools of the trade
Clamp believes the group avoided many of the problems of with-profits by moving its clients into alternative investments. He says: &We were a with-profits company like all UK life insurers. However, when we demutualised we had to decide which areas had the best risk and reward scenarios for our policy and shareholders. We then took a conscious decision to move those people into other more popular areas of investment.&
In March 2005, Friends Provident launched Dynamic Portfolio Planner (DPP) in conjunction with Distribution Technology. The online risk profiler and asset allocation tools offer guidance on efficient asset diversification as well as fund portfolio construction. Designed for advisers, the tool is 'advice led' adopting a strategic asset allocation starting point, rather than a single 'product-driven' solution.
Clamp says the tool has proved popular and offers advisers help in fund selection and analysis. He adds: &The feedback we have received tells us that the tool has gone down very well. It's an area for us and the market that continues to grow and evolve. We have already made enhancements to the tool and we will continue to add more in due course.&
So what does the future hold? The group has already distributed leaflets and booklets in preparation for both pre and post-A-Day, explaining to both advisers and clients how much it will affect them and, more importantly, how to respond to it.
Clamp believes the company is now entering a period of consolidation. He adds: &In terms of protection it is a case of reinforcing ourselves as a leader in e-commerce and consolidating our market share. We are launching a Pensions Term Assurance product from A-Day to help clients deal with their premiums.
&On the pensions side, we have had lots of activity on both the groups' pensions and personal range in the run up to A-Day and on the investment side it is a case of underlining the proposition and its range of products.&
Alan Smith, managing director, Capital Asset Management
Friends Provident is one of the smaller quoted life offices and has often been the subject of takeover discussions as market consolidation continues. It has embraced IT and developed a reputation for being at the forefront of technological developments. However, it seems to be quiet on any wrap style platform offering and is likely to be left behind in the scramble for market share within this exploding sector of the market. It may decide that, as a traditional insurance company, its market will remain in protection and group pension products and not try to compete in the wealth management arena - a dilemma faced by many insurance companies, which are losing their markets to the investment groups and open architecture offerings.
Nick McBreen, financial adviser, Worldwide Financial Planning
Friends Provident is a household name with a great profile in the marketplace. I admire the way it has dealt with change in the marketplace over recent years - it was the provider for the first electronic application I ever did. I also use the Friends Provident Stewardship fund for inclusion in socially responsible investment portfolios - it is a fund with a great pedigree and track record but like all flagships it could perhaps do with a refit. We live in a world of constant change and the future for providers will belong to those who adapt and evolve. I am confident Friends Provident will meet the challenge.
£300bn of liabilities
View from the front row
Transfer from occupational scheme
Appointed by FCA and PSR boards