In my first week as a reporter for Financial Adviser back at the start of this century I was sent to a conference and told traditional financial services providers would be dead within 15 years.
Companies that had risen from writing a few insurance policies for certain professions when Queen Victoria was on the throne to become financial services giants at the start of the Millennium by expanding to offer investments, advice, insurance, mortgages and pensions would soon be as dead as a dodo, a top legal mind told a small room of advisers on a cruise liner heading towards Jersey.
Lots of eyebrows were raised by the prediction.
The lawyer’s views were far from unique at the time.
Providers are far from dead but perhaps the age of most “traditional financial services providers” trying to be all things to all people is over.Several reports of the era from analysts highlighted the threats facing traditional financial services providers as we moved into the 21st century.
I highly recommend reading a report produced by Charles Freedman and Clyde Goodlet for the Bank of Canada in 1998.
The report states: “The financial services industry has been undergoing significant change in recent years.
“The rapid pace of this change has left many financial service providers struggling to determine an appropriate strategic direction for the next few years.
“Many of these financial service providers think they are at a particularly critical juncture and are concerned a wrong choice could result in their becoming a declining part of the industry.”
If I hadn’t told you that report was produced almost 20 years ago I am sure you would have believed it was produced yesterday.
Back at the end of the 20th century and start of this one, financial services providers were convinced the way to survive as the world spun seemingly faster than ever before was to gobble up competitors and grow even bigger.
Whenever I spoke to a chief executive of a financial services provider to discuss why they had taken over a rival or merged, I was told big was best for survival.
Everyone seemingly wanted to be an Aviva or HBos and achieve economies of scale and competitive pricing to continue to go from strength to strength in the same way they had for 100 years.
However, your clients don’t just want “big” and the last 16 years have shown for every Aviva there is a HBos – size alone won’t see you soar in the 21st century.
Your clients’ expectations for the way services are provided, the instruments used to provide services and the nature of the financial service providers differ greatly from 10 years ago.
Factors driving these changes include technological developments, the changing role of competition and demographically led changes.
I don’t believe “traditional” financial services providers are dead and buried.
But I do believe they must evolve.
Providers that will survive and thrive are the ones that understand being the biggest isn’t everything and evolving and reshaping to deliver what your clients want, need and expect today and tomorrow is vital.
Providers – and advisers – who dwell on what they once were rather than focussing on being fit for the future are doomed to failure.
You don’t win an Olympic gold medal by looking back at the person running behind you.
You focus on what you need to do to be first past that finishing line.
Yes, if you were a behemoth in the past you must deal with the legacy of what you once were and the type of business you once arranged, but you must not be held back by past perceptions.
Past performance is no indication of future return. How well a provider grasped the way the world changed in the past is no reflection of how well it will be suited to the future.
The challenge for providers in 2016 is determining what services and products to offer now and in the next few years deciding what is the best size for your business to be in the future.
You have once been a heavyweight gold medallist but perhaps it is time to slim down and become a welter weight champion.
Adaptability is the key to success these days.
The sale of Cofunds was a reversal of one of the first deals done by L&G chief executive Nigel Wilson after taking charge in 2012.
But despite booking a loss, the disposal will boost L&G’s Solvency II surplus by £125m.
As Eamonn Flanagan, analyst at Shore Capital Markets, points out: “We view this deal as an excellent outcome for Legal given the IT spend we believe the group was going to have to commit to in the coming years in terms of modernising Cofunds’ offering.”
Post the shock of pension freedoms, it is clear that L&G’s focus is not on Cofunds but annuities.
The sale of Cofunds to Aegon followed two other recent transactions between L&G, the UK’s biggest pension fund manager, and the Dutch insurer: the takeover of Aegon’s £2.9bn back book annuity portfolio, and a five-year deal for the British group to provide individual annuities to Aegon’s pension customers.
Mark Gregory, chief financial officer at L&G, said: “Cofunds is at the point where it requires a significant upgrade in technology to exploit its leadership position in the UK platform market.
“We have concluded this long-term commitment is best achieved under Aegon’s ownership as a specialist wealth platform provider.”
Aegon is targeting £60m of cost synergies by moving Cofunds on to its more modern technology at a one-time expense of £80m.
Aegon has also secured a distribution deal with Nationwide, the UK’s largest building society, for investment products.
Alex Wynaendts, chief executive of Aegon, said: “This transaction builds on the successful repositioning of our business in the UK and the strong relationship we have built with Legal & General.
“By executing on our strategy, we have transformed our business into a cost-efficient, scalable platform business.”
Both Legal & General and Aegon are repositioning to focus on their “specialisms”.
Providers are far from dead but perhaps the age of most “traditional financial services providers” trying to be all things to all people is over.
Is that really a bad thing?
