Aberdeen and Virgin Money deal linked to FCA pressure

Aberdeen and Virgin Money deal linked to FCA pressure

A deal announced this morning (20 March) between Aberdeen Standard Investments and Virgin Money has been branded the result of increased regulatory pressure on the asset management industry.

Aberdeen and Virgin Money this morning revealed a joint venture, which will see Aberdeen provide asset management services to Virgin Money customers.

As part of the agreement, Aberdeen is buying 50 per cent of Virgin’s asset management business.

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Mike Barrett, director at consultancy the Lang Cat, said that of the £3.7bn of assets Virgin Money runs, around £2.8bn is held in its FTSE tracker product.

As FTAdviser has previously reported, Virgin charges investors in this passive investment 1 per cent of their savings a year - a multiple of the standard industry charge for a FTSE tracker, and higher than the charge levied by many active fund managers.

Mr Barrett said the charge is “heinous.”

He suggested it is "not a coincidence" this deal happened just days before the Financial Cnduct Authority is expected to move ahead with the next step of its crackdown on sharp practices in the fund management industry.

Before the end of March, the FCA is due to publish consultations stemming from the findings of its Asset Management Study, which, among other criticisms, found the presentation of fees and charges by the asset management industry was unsatisfactory. 

It is expected that as part of that, and tighter rules on senior managers that force them to take responsibility for wrongdoing at their firms, companies will be required to assess if their products are value for money.

"Maybe Virgin Money thought they have had a good run with this [the tracker], and the price will come down as a result of this deal.

"If that is the case I think this is a good deal for Virgin Money, when you look at the price Aberdeen are paying, which is about one years revenue.”

But Ian Lowes, managing director at Lowes Investment Management in Newcastle, said the expansion of Virgin Money’s investment offering, backed by the strength and expertise of Aberdeen Standard is a good move for both parties.

However he acknowledged Virgin’s existing range of tracker funds "are amongst the most expensive in their peer group".  

"It will hopefully help reduce the charges on [those]."

"The move is of course one motivated by profit potential so we don’t expect them to become the cheapest. Add to that, the reality that no investment house can be good in all areas and its as clear as ever that would-be investors would benefit more from seeking independent financial advice,” Mr Lowes said.

A representative of Virgin Money said the joint venture "provides us with a significant opportunity to transform our retail investment offering”.