The combined group was a sprawling entity, with operations ranging from Aberdeen’s substantial Asian equity operations – still run by one of the company’s co-founders Hugh Young – to a trio of adviser platforms and the 1825 adviser business.
The shares of the combined group are about 30 per cent lower now than when the combination was announced in 2017.
The company initially operated with joint chief executives Martin Gilbert from the Aberdeen side and Keith Skeoch from Standard Life. Both have since departed the business.
Gilbert had been one of the co-founders of Aberdeen Asset Management, and was very much the public face of the company.
There was a reliance on a few key cash cows: Asia, Gars, Harry Nimmo, and there were too many underperforming areas Ben Yearsley, Fairview InvestingJames Sullivan, head of partnerships at Tyndall, had been a shareholder in Aberdeen but sold out when it became clear that Gilbert would not be the dominant figure in the combined company.
He says Gilbert was granted “artistic licence” to operate the way he did at Aberdeen because of his ability, and this added value for shareholders, but with Gilbert sharing the chief executive role, it was no longer the case that he would be able to operate as he had in the past, something that Sullivan says was detrimental to shareholders and so he sold his holding.
The stark underperformance of the share price since the merger happened is about more than personalities, however. The early years of the combined company saw it focus on its asset management arm - but it is this part of the business that has done most the damage. The firm's 2020 accounts show net outflows of £29bn, with adjusted pre-tax profits down 17 per cent to £487m.
Those outflows included more than £25bn from the loss of a long-standing mandate that had been held by Aberdeen to manage for Scottish Widows, but which was later removed due to Scottish Widows' objections to the merger.
Stripping out the impact of the Lloyds withdrawal, net outflows were £3.1bn in 2020, compared with £17.4bn in the previous year.
Redemptions may be slowing at last, but the company's new management is increasing the focus on other parts of the business.
In its presentation to analysts on its results day in March, SLA listed weaknesses that included being "underweight wholesale distribution", as well as having "undervalued" platform and advice arms. It is now seeking to do more with those parts of the company.
SLA said it was unable to comment for this article in advance of the company AGM later this month.
'Historic reliance' became hindrance
But what went wrong with the asset management arm? From advisers' perspective, the company's MyFolio multi-asset range has proved a popular way of managing client money. But this has not always been the business' main emphasis. Another weakness highlighted by the company's analyst presentation was a "historic reliance on 'hero' funds".
Darius McDermott, managing director at Chelsea Financial Services, agrees the problem with the asset management business was that both Standard Life Investments and Aberdeen were over-reliant on a small number of strategies, with Aberdeen dependent on the Asia equities operation and Standard Life on its Global Absolute Return Strategies fund.
Both of those product ranges had been innovative when launched, with Gilbert among the first UK finance industry executives to understand the potential for growth in Asian economies and markets in future, and to dispatch senior people from the business to set up operations there.
Standard Life’s Gars offering was one of the first absolute return funds available to the UK retail market.
McDermott says: “The Asia strategy at Aberdeen was so successful that at one stage they hard closed it, that is, they wouldn’t allow anyone to put any more money in. The problem is, not long after they did that, the funds started to underperform, and so the outflows came. And because it was hard closed, there were no inflows to come in.”
The Gars fund shrunk from a peak of just over £20bn in size in 2018 to £4.9bn at the end of November 2019. At the end of March 2021 it was £3bn in size.
One of the problems faced by Gars and its investors was that several members of the original team left to launch copycat products. Founder Euan Munro joined Aviva Investors and eventually became chief executive of that business.
Other former Gars managers went to Invesco to launch a similar strategy.
But Ben Yearsley, co-founder of Fairview Investing, says the issues were more to do with the fund getting too big to be effective.
He says: “There was a reliance on a few key cash cows: Asia, Gars, Harry Nimmo, and there were too many underperforming areas. A merger clearly wasn’t going to solve the inherent problems. You’ve also seen a number of departures post-merger too – fund managers and also lots of the executive management team.
"Overall the merger has been pretty abysmal for shareholders - in what has been a great bull market - and also not great for investors. Areas that were doing well were arguably milked and took too much money.
Yearsley says the best fund management groups should be "pure asset management plays", adding: "don’t mess around with platforms or solutions, just have a range of great funds.”
The platforms
However, Standard Life Aberdeen is not just about funds. Having agreed to sell Parmenion, it is still left with two platforms: the Wrap and Elevate businesses.
Data compiled by Fundscape, a platform consultancy, indicates that Standard Life’s platforms combined had gross inflows of £6.3bn in 2020, but on a net basis inflows were not among the top five largest in the advised platform market.
Ben Hammond, platforms director at consultancy Altus, says: “The Wrap and Elevate platforms are very similar in many respects, including the FNZ technology they run on, but do differ in their offerings.
"Since Axa exited the platform market, the Elevate brand has remained, but has been somewhat overshadowed by developments to the Wrap, Standard Life’s original platform.
"Their innovative pension drawdown freeze proposition, announced at the same time as a price reduction just over a year ago, is a good example of this."
Chief executive Stephen Bird told analysts in March that SLA wants to "become completely indispensable for both the adviser and the end client by making the [platform] experience best in class."
The company had already announced it would "integrate Wrap and Elevate" this summer. That includes merging the two websites, though the extent of the behind-the-scenes changes remain to be seen. With more than half of UK adviser firms already using either Wrap or Elevate, according to the company, the stakes are high.
Other changes may also be on the way. Hammond adds: "There has been a fair amount of movement in how the Standard Life Aberdeen business is organised of late, with the 1825 advice brand, Aberdeen Standard Investments and even Focus Solutions (wholly owned since 2011) seen as integral parts of the group.
"Although this combination means the group is typically viewed as vertically integrated. This is not always obvious or even promoted, perhaps deliberately so, but is perhaps something the new brand aims to remedy.”
There are hints that the new brand is a precursor to more integration. Bird told analysts that the company was moving away from distinct business units, and will "offer the full range of support for our clients, whether they want to deal directly, receive advice, or indeed receive bespoke client management. We'll also make it easy to move between the various support levels, recognising that client needs change all the time throughout the life cycle."
The Abrdn name was met with derision when announced last month, but it is an apparent attempt to avoid confusion between the various parts of the company. They include Aberdeen Standard Investments for the asset management arm, Aberdeen Standard Capital for the DFM business, and Standard Life Aberdeen for the plc. There is also Standard Life on the pension side, which has since been sold to Phoenix.
However, fund names are still under review and are not guaranteed to change.
What is clear is that, as Morningstar UK's director of manager research Jonathan Miller says, the company is now under new management.
"The joint chief executive structure, involving the heads of the original two firms, came to an end in 2020. Stephen Bird [joined] from Citigroup where he was most recently chief executive of global consumer banking. A fresh pair of eyes here will likely be of benefit."
For all the company's ambitions in the advice and platform space, there is still the matter of how to improve its asset management arm - which accounts for the bulk of the businesses' assets and profits. Miller says: "Now that investment processes have been integrated, duplication removed, and decision-making in investment teams tweaked, the burden of bringing these aspects together has now passed.
On more recent changes within the funds business, he says: "Much thought has gone into refining the analysts' research template, how their ideas are brought forward, and accountability. Early signs are this has been rewarding based on their buy and sell decisions. Meanwhile, the bonus structure is based on a mix of one and three-year performance. Retaining talent, embedding a culture, and delivering on performance are key milestones from here.”
Investors will be looking closely over the coming months.
David Thorpe is special projects editor of FTAdviser
