Robo-adviceMar 10 2021

Royal London's purchase of Wealth Wizards is a smart move

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The last decade has seen the rise of FinTechs, many of whom I imagine saw being acquired by an incumbent as an exit strategy.

More widely, the market is busy with acquisition activity, particularly through private equity, as we have seen with Bain Capital’s purchase of LV=.

Royal London would have become well aware of Wealth Wizards' capability when conducting due diligence on the potential purchase of LV=.

It may be good fortune that Bain Capital have concluded that Wealth Wizards is not core to its strategy, giving Royal London the opportunity to acquire an LV= asset that Royal London valued.

Royal London would have become aware of Wealth Wizards' capability when conducting due diligence on the potential purchase of LV=

Royal London’s purchase of Wealth Wizards from LV= could be driven by a number of underlying dynamics in the market. 

1. Digital

Like many of history’s negative events, there are positives that have emerged.

The pandemic has acted as a catalyst for adoption of, and comfort with, digital. The removal of access to long-held channels of comfort forced a behavioural shift that had previously resisted encouragement alone.

Online banking has increased significantly in adults over 65. As many as 84 per cent of adults made a contactless payment in 2020, while the use of mobile wallets has doubled since 2017. If nothing else, we have all become WhatsApp, Zoom, Hangouts, Teams, Google Meet experts as we played conference call bingo at home and at work.

It remains to be seen what shape the industry takes once we ‘return to normal’ but you feel it will be one where digital enablement takes centre stage.

Providers with the digital capability to be efficient and to engage a new digitally comfortable customer will be well placed.

The MyEva capability, from Wealth Wizards, will add value to Royal London’s workplace proposition and benefit that cohort of customers through engagement with their retirement.

The advice market will shift from face-to-face to hybrid, digital face-to-face advice as geographical boundaries are rendered less relevant to growth ambitions.

Royal London acquiring that capability through Wealth Wizards is a smart move. Not just what they have today but what they could develop in future using their underlying technology, innovative culture and talent.

2. The advice gap and economic advice orphans

The perfect storm of pensions freedoms and the Retail Distribution Review has led to customers, particularly in decumulation, falling below an economic level to service and becoming ‘economic advice orphans’. This is a particular issue for life offices with large legacy books of business.

How do you continue to support and deliver good outcomes to these customers?

A problem that is amplified for customers with old IB policies, Annuities, With Profits and Equity Release, none of which sit neatly on an open architecture investment platform.

Customers with a portfolio of these types of products need specialist advisers, who often do not hold the qualifications to give truly holistic advice, just when the customer needs it most.

The financial adviser has the option to no longer serve an ‘uneconomical’ customer but the life office, especially a mutual, has an inherent duty of care. A failure to support them could prompt the customer to contemplate transferring out, resulting in loss of lifetime customer value and reducing the value of the book of business.

Wealth Wizards was founded on the principle of making advice accessible to the mass market, given only 8 per cent of UK investors receive it.

The ability to offer a digital, streamlined advice solution to these clients, could add real value for Royal London by providing a robust process to support customers who might otherwise be economic advice orphans.

A bonus too for the clients themselves who are arguably the most at risk and in need of help. Whether Wealth Wizards’ service will be extended to include the comprehensive range of other products they may have with Royal London, is yet to be seen.

As an outside observer, it will be interesting to see how this evolves. How Wealth Wizard’s existing customers view the move could be telling. I would not expect a knee jerk reaction but medium term, existing relationships may rely on how the acquisition plays out.

It was interesting that their chief commercial officer departed to Succession this week and you wonder whether there will be a changing of the guard at Wealth Wizards. If so, will they be able to maintain the innovative, purpose driven culture as part of a life office?

Jonathan Warren is a Consultant at Altus