The Aberdeen/Standard Life mega-deal might seem defensive but the scope is there to create something different, says Brendan Llewellyn - always assuming the leading players wish to do so ...
The Standard/Aberdeen deal may well presage other similar link-ups, as the asset management sector comes under pressure from asset loss, regulatory interest, price strains and the closely related swing to passives. Not to mention the fact the many investment bankers who missed out on this deal will be in immediate huddles to come up with other synergistic proposals.
Synergies of course ought to have a consumer element to them, but really the conversations are all about shareholder value and, of course, the typical arrangements as to who gets what top job. While in the course of normal business, a customer focus is more or less expected nowadays, when it comes to ‘deal time', the finance people take over.
So, to take but one example, if this deal is expected to yield £200m in annual savings after a few years, where do those savings go? Do they go towards enhanced customer experience, or adviser support, or towards fund price cuts? Or do they go towards shareholder value - however measured? I suspect it will be the latter
If you are advising on these companies' funds therefore, what to look for? I would have thought that advisers with some client money in these two behemoths would be looking closely at developments and making their views known.
First, all commentators seem to be agreeing this is a good fit. Nevertheless, both groups are firmly in the active camp, which puts them on the wrong side of the biggest trend in investment - the sway towards passives.
Generally, advisers involved in fund selection now need to be kept fully in the picture on any changes to management, as well of course to fund mergers. Some advisers, no doubt, will review support until it becomes clear what the outcomes are. But the new group will be aware of this and will make haste in providing reassurance.
In any case these are both large enterprises so the work involved in the merger, through demanding, will not overwhelm them as it might with lesser players. I presume the twin CEO plan is to allow one to lead integration while the other drives the business on.
Both elements of the new group have their issues - Aberdeen with a fair amount of fund shrinkage and Standard with similar issues around the GARS product. But even though the deal might seem defensive, the scope - should they wish to seek it - is there for the new business to create something different. To put it another way, if one plus one only ends up equalling two, with some cost savings thrown in, that would be a missed opportunity.
I have often thought that, in this sector, the volume leaders do not lead in any other sense. Why not? The combined group has access to one of the larger wrap platforms and, in Parmenion, one of the ‘third-wave' platforms. It also has access to the group's strengths in corporate business, in 1825 and so forth.
Connect with end-clients
One way or another it needs to connect with its end-clients. Since the platforms' and fund houses' retreat from direct distribution, they have become a tad isolated. The debate will never settle as to who gets too much of the fee cake but, at the moment, most point the fingers at the fund houses. One of the many strategic challenges that sector, and this new combined group, face, is how to sell on value and thus avoid a battle where the only criterion is price.
The main question from a consumer perspective, and hence of great concern to professional advisers, is do fund groups meet customers' requirements. The slicing and dicing in the sector today, the products made out of other people's offerings, the growth in DFMs and in models as products - all would suggest the core activity of fund creation has been marginalised.
The funds, in other words, are just a component for somebody else's managed solution. It may well be that the value and hence the money is in the latter. So maybe this new group should focus on solutions rather than components.
The GARs product has been an enormously successful attempt to do just that. It will need to fast regain its performance if it is to avoid further outflows but hopefully the new group can consider a range of solutions that actually match client needs. Needs currently unmet would include solutions with more of an emphasis on outcomes. That seems to be a better way forward than tinkering with the two groups respective funds. ‘Business as usual' won't be enough.
So, good luck to the new entity - most obviously ‘Standard Aberdeen' or even ‘Aberdeen Standard'. Or maybe Aberdeen Standard Life Asset Management - which is too long so becomes ASLAM. That, with apologies to Liontrust, could work well.
Brendan Llewellyn is owner of Marketing Edge and director of Adviser Home
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