In general terms, of course, his departure could be regarded as a fairly predictable consequence of Origen’s lacklustre performance in the past 12 months, and the fact that it has never been a profitable operation.
Idea
Originally, say sources close to Aegon UK, the idea that underpinned Origen was that each of the original five IFAs that constituted the new firm would provide a specialist sales force to distribute products along specific product-lines.
In this way, the senior sales management in the UK believed that, with provider margins at that time under pressure, more profit could be made from buying into the fatter margins that they thought would be available in the distribution networks for some time to come.
However, this vision clearly did not manifest itself into reality, as Origen and Aegon’s other national IFA business, Positive Solutions, recorded a combined loss of £1.7m for Q1 this year (published on 8 August), a £1m loss in the same quarter of 2012, and zero earnings in Q4 last year.
However, full year accounts for the two distribution arms point to the majority of the losses having been accrued by Origen, with PosSol having reported profits before tax last year of £2.3m, wiping out a £0.4m loss in 2011.
Origen, meanwhile, reported a £2.9m loss for 2012, with income having fallen to £16.2m in the year, down from £17.6m in 2011, and the firm having set aside a further £1.9m towards a review of its systems and controls and the suitability of regulated advice given to clients, on top of money already put aside when the review began in 2011.
Origen is also bracing itself for the fallout from a case brought by the Financial Services Compensation Scheme regarding Keydata Investment Services to assess its potential liability after the scheme paid out to Origen customers who were advised on Keydata products.
In some ways, Mr Kirsch’s departure can be regarded in the same vein of collateral fallout from a newly refocused Aegon business strategy in the UK.
This new strategy, according to those close to Aegon in the UK, involves entirely exiting the lower-margin distribution business in the country, and instead refocusing all efforts on becoming the dominant supplier of pension-related products and services primarily for the workplace, and executed as much as possible over the Aegon Retirement Choices platform.
Indeed, as chief executive Adrian Grace underlined early this year: “In a post-RDR world we intend to focus on our market-leading platform, which is gaining traction at a remarkable rate, and on advancing digital solutions to better meet the savings and retirement needs of our customers in the workplace and those individuals approaching retirement.”
The first quarter’s results underlined an surge in demand for Aegon’s workplace savings and at-retirement propositions, according to Mr Grace, as new life sales rose by 37 per cent to £244m over the quarter year-on-year, which the provider attributed to the impact of auto-enrolment, and platform sales dramatically accelerating over the period.
Such a shift in strategy would go some way to explaining the recent confusion from Aegon over whether Origen was, as Mr Grace stated following the introduction of the RDR, “tied to” Aegon’s products, for example, or specifically “restricted”, as the company’s PR department later sought to clarify.
It would also provide a sound strategic reason behind the sale of most of PosSol, its more profitable advisory business, to Intrinsic, despite the £18m write-down it incurred for Aegon.
Such a strategy was expounded by Mr Grace after the first quarter results, although only its broadest terms: “We are making significant progress on our strategy of focusing on the workplace and at-retirement segments of the market.” He added: “We continue to divest businesses that are non-core to our future.”
In this vein, the next specific moves, according to sources close to Aegon, are to gradually dispose of the remaining 7 per cent that it holds in PosSol, to continue to close its regional sales offices, and to eventually dispose of its stake in Origen entirely if it does not start to make a profit soon.
In the case of PosSol, say the sources, the disposal of Aegon’s remaining stake will occur only when it starts to generate consistent profits every quarter.
The disposal of Origen, if it remains unprofitable even under its interim chief executive (also Aegon’s executive chairman for distribution, Rob Waller), is also likely to be delayed until some time has elapsed between the sizeable write-down for Aegon that it would incur and the hit it took on the PosSol’ disposal.
Aegon’s sales force around the UK, though, may not have time on their side, with more regional offices likely to close sooner rather than later.
Closure
These closures would follow the statement earlier this year from Aegon that it would close six regional sales centres – based in London, Glasgow, Guildford, Birmingham, Manchester, and Bristol – and had entered into consultation with 160 staff in regional sales support roles, and some face-to-face roles.
The restructuring is expected to continue into 2014, including upgrading existing customers to the platform, which Aegon hopes will keep the Scottish Equitable pensions accounts on the books but more cost-efficiently.
The final part of the new strategy, it is believed from sources very familiar with Aegon’s operations, is for the company to dramatically reduce the number and type of IFAs with which it will deal in the future, to the top 2000 maximum, all of which will have to use the platform to conduct their business.
Simon Watkins is a freelance journalist
Key points
- Mike Kirsch’s surprise departure from Origen was announced last week
- Origen has been making a loss for quite some time
- Aegon is undertaking fundamental restructuring of the business in the UK
