Standard Life's acquisition of Axa Elevate will see platforms position themselves as "buyers or sellers" in a newly consolidating market, according to Standard Life's David Tiller.
There has been speculation around consolidation of the platforms market for years, but different underlying technologies have acted as a barrier. However, the increasing reach of two major technologies, Sonata Bravura and FNZ (Standard Life and Axa are both on FNZ), has made consolidation more viable.
The deal, which is the second this week following Aegon's acquisition of BlackRock's defined contribution platform, is believed by analyst Macquarie Capital to have cost Standard Life £50m with a further amount (less than £50m) required to merge the IT systems.
The deal will take four of five months to be signed and receive regulatory approval, according to Standard Life's head of adviser propositions David Tiller (pictured).
Speaking to Professional Adviser, Tiller said that this acquisition will be the first of many in a newly consolidating market and that as a result platforms will begin to position themselves as "buyers or sellers".
He said Standard Life will continue to run the platforms as two separate propositions for advisers, and that set up may continue indefinitely, meaning advisers will not face client suitability issues as a result of the deal.
The efficiencies will not come from a merger of platforms but from back office consolidation around trading of assets, keeping client records, managing client money and governance and risk control.
"We don't need to change the proposition to benefit from efficiencies around common technology," he said.
Tiller described the Axa Elevate as a less complex platform than the Standard Life Wrap meaning it has tended to charge less for its service.
"The average holding on Axa Elevate is £80,000 to £90,000 compared with £180,000 to £190,000 on Standard Life," he said.
The former caters for mass market clients. As such, the deal will help Standard Life broaden its client base and address the ‘advice gap' which affects this section of the market.
That said, Tiller explained that Standard Life will need to look at pricing on the Axa Elevate Platform: "Axa Elevate needs to be sustainable over the long term and it is well known that it has been making losses; pricing on the platform needs to be complimentary."
Both the Standard Life and Axa Elevate platforms have been increasingly strong in the pensions space following pension freedom and this deal will see Standard Life flex its muscles further.
It plans to take responsibility for all the pension products on the Axa Elevate platform. "Pension products on Axa Elevate will all become Standard Life products," Tiller said.
It is a 'distribution deal'
Research company FinalytiQ principal Abraham Okusanya said that he also expects this deal to be the first of several.
He said: "There are 30 platforms in the market, this is 15 too many. Axa spent £172m building its FNZ wrap, this was a huge investment and despite growth in its AUM it always had financial difficulties. It is not the only platform to have suffered in this way.
"Standard Life will see efficiencies as a result of the merger of underlying technology, but, more importantly, it is looking to extend their distribution. Basically, this is a distribution deal."
A waiting game?
Platforum research director Heather Hopkins is more circumspect regarding further consolidation.
"This is not a watershed moment. The cost of new platforms seems to be high and nobody knows how to tackle integration. A merger of the front end, if it does happen, would force advisers to revisit their due-diligence process and may raise suitability issues. In my opinion, other providers will wait and see how the merger works before embarking on the same," she said.
"The market will also be interested to see what Standard Life does with the D2C proposition AXA Self Investor. Although this is quite small there may be an increasing appetite for the service."
Hopkins added: "However, this is an obvious deal, the platforms have a common cultural heritage. Both are life insurance companies, they have a shared back-end technology and are very strong in the pensions space."
