Your IndustryJun 9 2015

Experts predict adviser/insurer convergence

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Experts predict adviser/insurer convergence

Insurers buying into adviser territory, while the larger advisers are buying their way into areas usually reserved to insurers, could spell troubled relationships ahead, according to senior directors at Ernst and Young.

At the start of February, the most major development in this space came with Standard Life’s launch of a wholly-owned, UK-wide financial advice business, after agreeing with Skipton Building Society to buy its Pearson Jones advisory business.

Later that month Mike O’Brien, managing director of TenetConnect and TenetSelect, and Matthew Timmins, joint managing director of support services firm Simplybiz, both said they expected more life company deals to secure distribution.

Malcolm Kerr, executive director for EY’s financial services division, pointed out that while insurers and asset managers were flexing their muscles and looking to pick up more direct distribution through buying up advisory firms, the larger wealth managers and IFA consolidators are making their own power moves.

“Many consolidators and larger advisers are developing their own investment propositions and platforms, and once they do, they’ll essentially have the same capabilities as insurers, which may lead to some awkward conversations,” he commented.

Mr Kerr predicted this trend last autumn, telling FTAdviser at the time that product providers were looking at acquiring advice firms to allow them to secure greater levels of distribution, diversify business models and boost margins which are being increasingly squeezed in the post-RDR world.

At the end of last month consolidator Succession Advisory Services revealed it has applied for discretionary fund management permissions to complete what chief executive Simon Chamberlain called the “holy trinity” of value, combining adviser fees through the national advice firm, administration fees through the platform, and now fund management fees via a DFM.

Jason Whyte, insurance director at EY, explained that the Retail Distribution Review forced financial advisers to look for new business models to bolster their income, with the broad scope of restricted advice paving the way for more advisers to buy or build investment platforms and set up their own funds or discretionary managers to look after client money.

“This has allowed them to capture more of the value chain, and has led to a growth in consolidators buying up smaller advisors to consolidate their clients’ holdings onto their in-house investment proposition. For many smaller advisory businesses, whose principals are typically in their 50s or 60s, this offers an attractive exit strategy.”

He added that many traditional life and pension providers are also looking at consolidating advisers, in part as a defensive play to protect their access to end customers and the assets on their own platforms.

“While many providers have been burned by forays into this market before, and will find it difficult to hit the right balance between controlling the risk and retaining advisors’ entrepreneurial spirit, EY estimates that as much as 50 per cent of the market could move to this revitalised vertically integrated firm model over the next 5-10 years, making it a trend that no-one can afford to ignore.”

peter.walker@ft.com