The merger between Standard Life and Aberdeen has raised suspicions among fund buyers and advisers that this is the next step towards Standard Life dropping its life business.
Earlier this month Standard Life and Aberdeen agreed to a £11bn all-shares merger which will make the combined company the largest active manager in the UK and the second largest in Europe.
The £660bn asset management arm of the new business will be nearly double the size of the £357bn insurance business, with Martin Gilbert from Aberdeen and Keith Skeoch from Standard Life sharing the chief executive role in the new group.
Dennis Hall, chief executive and chartered financial planner at Yellowtail Financial Planning, said it makes sense for Standard Life to transition from a traditional life company to an international investment business.
Ongoing legacy issues, low bond yields and decreasing margins have made traditional life companies less profitable in recent years, while investment businesses, although facing squeezes of their own on fees, appear to have experienced greater profitability.
“This shouldn’t come as a surprise to anyone who has been reading the annual reports, as these have referred to the groups’ objectives of becoming a major international fund house.
“With platforms and third party wrappers, there is more money to be made managing investments. Annuity business is not a growth area, and Sipps and Isas are gaining better traction than conventional life based products,” Mr Hall said.
Adrian Lowcock, investment director at Architas, said that less complexity and better margins would make a focus on asset management more attractive going forward.
“Certainly the focus will and already has shifted to asset management,” Mr Lowcock said.
The life sector has been under ongoing pressure lately from the Solvency II Directive, which dictates the amount of capital that insurance companies in the European Union must hold to reduce the risk of insolvency.
Standard Life stopped offering annuities to customers on the open market in November last year after demand for these products plummeted following the introduction of the pension freedoms, which allowed consumers to forego an annuity to take their savings as a lump sum.
In June 2015 Keith Skeoch, Standard Life Investments’ chief executive since 2004, took up the dual role of chief executive of both the insurance and asset management arms of the business, leading some at the time to speculate about a strategy change at the company.
Gavin Haynes, managing director at Whitechurch Securities, said there is “no doubt” that the merger with Aberdeen is the latest move in a long-term change of strategy to focus on asset management and distribution of investment products.
“Given their move to becoming the UK’s largest fund management businesses I would expect that they will continue to focus on this area and expand globally. As a result insurance would continue to become less important.
“They now write little in the way of annuity business and it would be no surprise to see them withdraw further from this area,” Mr Haynes said.
When asked would the plug be pulled on the life arm of the Edinburgh-based provider, a representative from Standard Life stated that the pensions and savings business “remains an important part of our diversified business model”.
At a recent investors conference following the merger with Aberdeen Mr Skeoch said the company “shouldn’t forget the distribution strengths that comes from our strong position in the UK pensions and savings market that provide regular and steady flows through regular workplace contributions”.
Ryan Hughes, head of fund selection at AJ Bell, said it is “entirely possible that Standard Life and Aberdeen may look to carve out the investment business from the life business and form a standalone asset manager going forwards."
However, Mr Hughes noted that this would likely be “some way down the line” to allow Standard Life and Aberdeen time to fully integrate the two fund management entities first.
julia.faurschou@ft.com
