In the 1970s, when the UK had to go cap in hand to the International Monetary Fund, a popular car sticker was “Will the last businessman to leave the country please turn out the lights”.
Looking at the recent decision by Axa to quit the UK’s life, pensions and savings markets, perhaps we need a new sticker for the last life company to leave the country. Given the weight of regulation, and the constant squeeze on profit margins, we should not be too surprised by Axa’s decision, nor will it be alone in this move. What is a bit surprising is that Axa appears to be confident it can generate the higher margins needed in other parts of Europe.
More importantly, from a financial adviser’s perspective; Axa Wealth Management is not a failing business. The Axa Elevate platform attracted almost £10bn of assets from 160,000 customers in a relatively short timescale, while in the past five years, the overall assets of Axa Wealth Management have tripled in value from £15bn to more than £45bn. One would have to say that far from being a failure, Axa Wealth has recently delivered a stunning growth performance for its French owners.
Given the weight of regulation we should not be too surprised by Axa’s decisionThe only conclusion that can be reached from Axa’s decision to quit is that profitability is becoming increasingly difficult and nobody can see an end to over-regulation and margin squeeze. We all want to deliver good consumer outcomes for clients, but commercial reality also demands firms must be able to operate at a profit. HM Treasury and regulators ought to reflect on the story of the Yorkshire farmer who decided to save money by feeding his cows less each day in the belief that he would eventually get them to live on nothing. Unsurprisingly, the whole lot died.
Similarly, about 50 per cent of the top 30 life companies in 1992 have now ceased to exist. This is a serious concern to financial advisers who are trying to help their clients choose products for long-term financial planning, and it ought to be a major concern for the regulators.
One of the paramount objectives of the FCA is to create confidence in the UK financial services market; it is difficult to see how that objective is being achieved when organisations such as Axa decide to shut shop.
Ken Davy is chairman of SimplyBiz