By all metrics Andy Bell has had a fantastic year. His eponymous business AJ Bell, which started as a 50-person operation based out of an office in Salford Quays, has morphed into an 800-strong FTSE 250 platform giant valued at more than £1bn.
The Liverpudlian CEO has had a varied career to say the least, starting out as an actuary for a big insurance company before packing up and heading to Portland, Maine, where he was a football and tennis coach at a summer camp and “had everything a young lad could want”. He was eventually drawn back into the actuarial world across the pond.
But becoming discouraged by the industry modus operandi of designing expensive products with hidden charges, he developed a hankering to run his own business. “I’m not a natural employee. I don’t like being told what to do. Never have done, never will do.”
Reinventing AJ Bell for the internet age
In 1995, AJ Bell was born. For the first five years, Bell was on the road, travelling up and down the motorway in his MG Midget, visiting advisers and their clients all over the country. “I think I must have done around 100,000 miles within about 18 months,” he chuckles.
While the work was rewarding and made him realise that what advisers wanted most was “someone to pick up the phone when they rang”, the “hard slog biz” was taking its toll and he realised he would have to change tack if he wanted to grow the company. In 2000, at the height of the dotcom era, he decided to re-invent his company using the internet and launched the first online Sipp in the UK.
Bell redefined the product by stripping out “all of the manual boring bits” and excluding things that couldn’t be traded online, such as commercial property and trustee investment plans, effectively destroying the pricing of traditional Sipps. Soon enough the whole market was being flooded with online share dealing accounts and Bell rode the wave into the volume-based world.
Riding up the rich list on IPO
Nearly two decades on and business is booming. The firm was valued at £651m when it floated on the London Stock Exchange last December at 160p per share, and the shares have more than doubled since then, trading at around 400p. Bell owns a 25% stake in the company and has seen his personal fortune skyrocket, jumping 299 places in the Sunday Times Rich List, which puts his net worth at £360m. He tells me he isn’t allowed to check the company’s share price.
The main reason he listed his firm last year was to improve the firm’s brand awareness. “We always felt as though we were the best-kept secret out there,” he explains. “Loads of people in the industry know about us but the man in the street typically didn’t.”
He says the IPO is “the start of the journey, not the end”. “We’re doing this to start growing again.”
‘Utmost respect’ for Woodford
One major shareholder he lost along the way was Neil Woodford. The beleaguered manager had been one of AJ Bell’s biggest financial backers, investing in the platform group as far back as 2007. But he ended up selling his entire 8% stake to his former employer Invesco and AJ Bell’s management team before the IPO, a move some said hinted at a liquidity problem.
Bell explains he still has the “utmost respect” for Woodford, who has been in the spotlight since suspending his equity income fund after being unable to cope with heavy redemptions.
Reflecting on the troubled UK equity manager’s predicament, Bell says people in the industry are “too quick to kick people when they’re down” and that Woodford is “fundamentally a good investment manager”. “I hope Neil comes through it.”
Platforms are the ‘sweet spot of financial services’
Bell’s firm has showed impressive stamina, growing at around 20% per annum for as far back as he can remember. While he recognises the bigger the business gets, the harder it will be to keep matching that level of growth, he thinks being in the platform space is the “sweet spot of financial services”.
Platform groups have a much easier time retaining assets than fund businesses and are only losing assets when someone dies, a customer has genuinely saved up enough money and wants to go spend it or when an adviser decides to switch providers.
“Most of the good platforms have got 95% retention on their customers and assets, so when you’re growing at 20% and retaining 95% of that, you have got a pretty good business model.”
And yet the platform market as a whole is a loss-making industry. For every Hargreaves Lansdown, Transact, Nucleus or AJ Bell there are dozens of other businesses in the advised and D2C spaces, many of them fresh-faced fintechs that are failing to break even.
The industry’s losers are struggling for different reasons. Some don’t have the scale to compete; others are losing business because their IT systems aren’t up to scratch, a point which Bell says people are “rightly very nervous about”, given the slew of re-platforming mishaps in recent years. Many are simply charging too little for their services.
“I don’t think it’s the cheapest that’s going to win this game,” says Bell. “I don’t think it’s the one that out-services everyone else, although, clearly, service is key. It’s not the one who’s got the most bells and whistles. For us, sitting around all of that is the one that’s easiest to use.”
Simplifying the investment landscape
While Bell wants the firm to be reducing charges as it grows in scale, he places more emphasis on building customer trust and making the experience as easy as possible.
“Whether it’s an adviser or a direct customer, every project we do, we say, ‘OK, how will this make it easier for our customers? Are we reducing the number of clicks on a phone, the number of data fields on a website, less pages to look at?”
Efforts to create a more straightforward experience for clients have been frustrated by ever-increasing regulation. Fifteen years ago, people would have been able to recognise an Isa, Bell says, but now there’s six different types all trying to do different things, which is “madness”.
“At the moment, Isas are like pensions were before simplification. And after all those years of simplification, pensions are now too complicated.”
Bell has spent a lot of time sparring with the Financial Conduct Authority and the government over the years on everything from the simplification of Isas to creating clearer charging structures. He wants the regulator to know: “We’re happy to spend time working with you, but trust that our motive is not just to try and get a few quid for our customers. There’s more chance of people investing money if it’s simple than if it’s complicated. If the government really wants people to invest money, they’ve got to make it easier.”
He thinks the FCA is “paranoid” moving from the “world of an annual management charge” to what he calls the “horribly named acronym” OCF or ongoing charges figure, which lumps the AMC with other fund charges, but not all.
On top of that, under the new Mifid II rules, platforms are required to convert discretionary fund management, advice and investment charges into pounds and pence. “It’s the price of everything and the value of nothing, but actually people end up knowing the price of nothing and the value of nothing because they’re so confused.”
Exit fees and AMCs
When it comes to fund charges, Bell believes the manager must run the fund like a business, paying for things such as dealing, audits and the authorised corporate director out of their own profit and loss account. That way the only figure that would have to be disclosed to the customer is the AMC and “if they can’t understand that they shouldn’t be investing in funds”.
He is also a fan of re-instating cash rebates, which were banned under the Retail Distribution Review, arguing they are more visible for customers and less complicated than the current unit rebates.
On the controversial subject of exit fees, Bell does not support an outright ban, putting him at odds with AJ Bell’s largest rival Hargreaves Lansdown and a small handful of platform groups that have scrapped them.
While AJ Bell is considering exit fees as part of the FCA’s consultation, Bell believes the cost of transferring customers to another platform has to be borne by someone and that shareholders or existing customers will bear the brunt.
“We had a call for information the other day from the FCA, which suggests they’re probably as far away from the solution on this one as they have been,” he says. “Personally, I think if you’re charging customers for a service and it’s clear when they joined you, there’s nothing wrong with it.”
What the FCA’s priority should be
His solution is to bring in specie transfer charges more in line with dealing charges, which platform groups compete aggressively on. The FCA’s priority should be on making switching between platforms easier and faster to do.
Bell has had many advisers telling him they are fed up with their current platform and want to leave, but don’t have the energy or courage to do it because they tried it before and it was too difficult. Though transferring cash and mainstream funds can take a matter of days or up to a few weeks, moving less liquid assets such as non-mainstream funds and property can take up to a month or two.
“As far as the adviser is concerned, it feels like the customer’s assets are disappearing for a period of time. It might be a few days or a couple of weeks, and with today’s investment climate you can’t have that. Your customer rings up and says, ‘Boris has made a booboo or Donald’s about to press the red button, what do we do with my investments?’ The adviser says, ‘I don’t know where they are.’ It doesn’t sound great, does it?”
Before Bell has to dash off to his next meeting, I ask him how long he plans on running the business, a question he gets asked more frequently since the IPO. His answer is that he “wouldn’t want to put a time on it” but has been thinking about who will eventually succeed him for the past 25 years.
“It’s my most important appointment. I say to everyone who works for me, ‘The most important job you can do is to recruit your replacement and make sure they’re better than you are.’ That’s my job, to make sure the person that comes along after me takes the business to the next level.”
