Defaqto can move forward and innovate

He used to run mergers and acquisitions at Balfour Beatty, the civil engineering giant with a market capitalisation of £1.7bn, and was about to make a move to another engineering company, but got caught up in the global financial crisis of 2008-09, and found himself at Defaqto instead.

However, there are many advantages of working at a smaller company, he says – Defaqto was valued at £74m when sold last year to SimplyBiz.

When it comes to the risk rating of funds, we do it differently to others

In a bigger company: “You’re just primarily influencing people, just pushing people in the right direction.

“In a smaller organisation you can make decisions and you can move forward with a lot of confidence. You may get it wrong but you can move forward and innovate.”

Ratings

Defaqto is known by financial advisers as one of several companies that rates funds, and provides analytical data that is helpful in product research.

It is used by 8,500 advisers and rates more than 21,000 products and funds.

It also offers a service to consumers, by giving a star rating to a range of products, including bank accounts and insurance products.

It has also been trying to make itself more useful by offering advisers a more comprehensive service – Engage – to advisers, providing a one-stop shop for a lot of their adviser/client relationship needs, from risk profiling, research recommendations and suitability reporting.

Mr Bilgrami says: “They need to follow certain steps and they need to go to a bunch of websites, and we allow them to do it all in one place.

“Previously, advisers may have gone to one place to do their risk profiling, then ask: how do I decide which share classes are good value for money to use for that particular client? Then they need to go off a create a suitability report.”

The whole aim of the software is “to make sure that the picture fits the client best”, after extracting the client’s data.

But Defaqto is probably best known for its rating tools.

It has a star-rating service for consumers, its diamond rating service, which assesses funds and risk ratings, both for advisers, as well as a service rating.

Behind the scenes, there is a team of 60 analysts and researchers who rate products, assessing them on their particular attributes.

Defaqto is in competition with the likes of Morningstar, but Defaqto also tries to distinguish itself by having its own process, different from its rivals. 

Mr Bilgrami says: “When it comes to the risk rating of funds, we do it differently to others.

“When you think about a particular fund, many people look at an asset allocation, and at what level of risk that fund is.

“We look at strategic asset allocation and the fund’s tactical asset allocation. Something that may seem simple is not as simple as [basic] asset allocation.”

Product review

Perhaps something financial advisers may be less familiar with is the fact that Defaqto provides a service for consumers, offering them a view on certain products.

It has a huge database of product details, including bank accounts, pension products and insurance products. In many ways it is similar to comparison sites, except that they do not monetise the data.

Mr Bilgrami says: “We are an information business. I think you run into difficulties if you manufacture a product and rate it as well.”

“We have an excellent relationship with product providers. They understand what we do, and they provide us with information.”

However, other comparison sites still buy Defaqto data, for their own sites.

Mr Bilgrami says: “Comparison sites will buy our data but we don’t tell them pricing information. They get pricing information elsewhere.

“Similarly the providers might call on Defaqto when they are thinking of launching a new product.

“Say you have a self-invested personal pension, and/or a drawdown income product, and we have someone who is thinking of manufacturing a new one, they might call us and ask us what people are doing, and they might share the information and help us understand what other people are doing. 

“We store that information on our database.”

It may be for example, establishing where such a product fits into the wider marketplace, and particular features and benefits, such as where the product stands on in-specie transfers for example.

Selling up

For many years, Defaqto has been in the ownership of private equity, the latest company being Synova Capital.

But last year they concluded that it was time for their exit, and decided to sell the business to SimplyBiz.

“Our business is ringfenced within a larger company. We’re a profitable business and all of the management that was part of the business continues to be part of the team now.

“We reinvest some of our profit into [the business]; a private equity company may have a different view in terms of what they do with the profits rather than a larger listed company.”

Last year, earnings before interest, taxes, depreciation and amortisation for Defaqto, at the time of acquisition, was £5.3m on revenues of £12.8m. The three main directors at SimplyBiz – Matt Timmins, Neil Stevens and Gareth Hague – all sit on the board.

All this points to SimplyBiz planning for a long-term future for one of the most-used data and research companies in financial services.

Melanie Tringham is features editor of Financial Adviser and FTAdviser