AegonMar 21 2018

Firing Line: Adrian Grace

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Firing Line: Adrian Grace

When he took over as chief executive in 2009, he went about turning the business, which owned the venerable Scottish Equitable brand, from a conventional life office to an investment-focused platform company, disposing of divisions and thousands of employees along the way.

Now he is bedding down the acquisitions of Cofunds, made in 2016, and Blackrock’s defined contribution workplace savings platform, and is ready to make even further acquisitions.

So what does he make of the traditional life office model?

He said: “I think that’s over. Those who think it will survive will not survive. We have to make choices now – I don’t think you can do all the things that a traditional life office did. Those that are hanging on will find that there are specialists around them that will take different pieces of the pie: some will do asset management; some will do risk protection; some people are going into platforms. 

“People are starting to make decisions on which of these is right for them; those who are trying to do everything will struggle – they will find aggressive competition wherever they go.

“It’s about scale in every area of business and if you don’t do it you will fail.”

Earlier in 2016, before buying Cofunds, Mr Grace sold the annuity book to Legal & General. Why was he so keen to get out of traditional pension contracts?

Mr Grace said: “When you go back to when a lot of those decisions were taken, it became very clear to us that [this area] was not very attractive, because of the introduction of Solvency II, the capital volatility associated with annuities was very significant. We felt in a declining market with capital volatility and with poor value for customers, we felt there wasn’t a market that had a future.

“You have to balance liabilities and assets and you back them with equities and bonds. We’ve been in a bull run for quite a long time and some time those bonds will default in a down market and the volatility will increase. We decided while the going was good to get out of that market and get into the fee-based sector.”

Mr Grace is clear that his vision for Aegon now is to be “adviser focused ... we’re trying to build the services to support the needs of advisers. We don’t want to take advice risk ourselves, we think that’s a specialist area and that’s something that advisers are well-equipped to take on. We want to offer all the services that advisers need to take on and work in partnership with them.”

To this end, Mr Grace makes a big distinction between his company and Standard Life Aberdeen, which has just offloaded its own pension book, has a big platform and is building its own financial advice business, 1825.

He said: “We don’t compete with advisers; we are not buying distribution to compete with advisers. Our job is to support advisers not compete with them.”

The other distinguishing feature between Aegon and Standard Life Aberdeen is, said Mr Grace, its approach to its own investment funds.” We don’t insist that advisers use our asset management capability. We think it’s right and fair that the adviser is the right person to choose what the right solution is, and it might be from the Aegon range or it might not be – that’s fine.”

In recent weeks, the company announced, alongside an internal management reshuffle, which made Mr Grace also chief executive of Cofunds, the launch of a new asset management business Aegon Investments, which will see the launch of multi-asset funds. 

He said: “We will never force advisers to buy our investment solutions, but with our buying power, advisers may want to use them in accumulation and decumulation.”

But the transformational deal for Aegon has been the acquisition of Cofunds for £140m. Paying for it out of Aegon UK’s own reserves, Mr Grace has committed to upgrading the system – something which many other potential purchasers balked at.

He is confident, despite problems with other platforms, that it is all going to plan. He said: “We bought the business 14 months ago and 14 months is not a long time, but we hope to have everything migrated by June this year. We’re on track with that and we’re on budget with that.”

The process is costing him £80m, with the cost of the platform being £140m, but with anticipated cost saving of £65m a year, the acquisition will have paid for itself in four years.

Part of his confidence in the migration is the fact that he’s moving Cofunds onto Aegon’s platform, which has established technology. He said: “We are moving to proven technology; it becomes more of a data game than it does dealing with new technology - that’s a big difference in terms of how it needs to be managed.”

Despite transforming the company and paying a £150m dividend to parent company in the Netherlands last year, Mr Grace is a long way from reaching for his pipe and slippers: “I don’t think the job is ever done”. He is looking for other platforms to buy; he made a bid for Elevate when it came on to the market before buying Cofunds.

“Scale is a critical component when you’re becoming a profitable platform; scale is a hygiene factor, but in its own right is not enough. You have to build the service and you have to lead the market in terms of product innovation.”

Melanie Tringham is features editor of Financial Adviser

 

Adrian Grace's career highlights

2009 - present Chief executive, Aegon UK

2007 - 2009 Managing director, SME banking, Lloyds TSB

2003 - 2007 Chief executive, Barclays Insurance

2000 – 2004 Managing director, small business division, Sage

1991 – 2000 Vice-president, auto financial services, GE Capital