Somewhere towards the end of the last century, reckons Sanlam UK chief executive Jonathan Polin, the UK asset management sector lost something important – in essence, a connection with the end-investor – although he is hopeful the loss will not prove permanent.
“I have always believed asset management and wealth management would come closer together and live within the same organisations,” he says.
“Ever since my early days at Aberdeen Asset Management in the late ’90s, when the industry stopped talking to investors directly and started doing all its business through intermediaries, I have felt this disaggregation from the client and loss of the value chain needed to be addressed. At the end of the day, the real influence should actually lie with end investors, not asset managers or intermediaries – but that is not the case at present.
“Asset managers used to be all-powerful – certainly they used to own the intermediary space, in terms of distribution – but that has changed. The pseudo-institutionalisation of the marketplace has meant it is no longer small IFA groups or individual advisers choosing solutions for their clients. It is now done through centralised desks – and consolidation has increased that trend massively over the past few years.
“Now, I would not want to suggest in a publication like Portfolio Adviser that intermediaries are being disenfranchised or disempowered but I do think this is the way consolidation will always happen – that larger players will come in, they will own these businesses and they will operate very structured, single-purpose central investment solutions.
“Looking to the future, I absolutely believe big asset managers will buy the larger financial advice and wealth businesses and have the whole stable within their operation – and, by the same token, some of the very large wealth businesses will actually buy asset management capability and embed them to give themselves that other part of the value chain they are missing today.”
Shifting frontier
In the three decades or so since he swapped a career in the army for one in financial services, Polin has had plenty of opportunity to study the shifting frontier between wealth and asset management at close quarters. After senior roles in asset management with Aberdeen, HSBC and Britannic/Ignis, he joined wealth manager Ashcourt Rowan as chief executive in 2011 to knock it into shape for an eventual sale four years later.
Polin joined Sanlam UK, the British arm of the South African financial services giant, in a similar role in 2016 – and is now poised to lead a new incarnation of the business’s UK wealth division following its acquisition last autumn by private equity funds run by Oaktree Capital. The US alternative investments specialist also has an interest in UK IFA consolidator Ascot Lloyd.
That deal is expected to conclude imminently and, until a new brand is unveiled later this year, the business has a licence to operate as Sanlam Wealth. What benefits, then, does Polin expect the new ownership structure to bring?
“Sanlam has always been a good owner of this business,” he says, “but we were always a very small part of a much larger organisation whose core market is Africa and the developing world.
“As such, the need for capital in those markets was always going to take priority over the UK business – and, strategically, that is absolutely the right thing for them to do.
“What Oaktree gives us, as a private equity backer, is an owner that is only concerned about one thing – and that is driving out the best business model and the best vehicle for creating value for the investors within the funds of Oaktree.
“So, if you like, it is much more purely aligned with our business than was the case when we were part of a global group. Oaktree’s private equity operation has invested $140m (£106.6m) into buying Sanlam Wealth on behalf of its investors and putting a significant sum behind us to modernise the business, bring in more technology, build a digital solution and grow through acquisition.”
Modern image
And how is Polin and his team thinking about the new brand? “We have appointed an agency, which is looking at the kind of brand we should have,” he replies. “We want to be able to differentiate ourselves from other wealth businesses – which are predominantly blue and tend to use the same stock photographs for their communications – and have a much more modern brand image.
“That being so, the balance we have to achieve is to create something that is modern and relevant to a younger audience – our clients of the future – but which does not alienate the clients we already have. To my mind, that is the bit we have to get right – it is trying to reflect that authenticity and relevance for the business in the brand that will be the key.”
One might imagine a good way of attracting those clients of the future would be through environmental, social and governance-oriented investment opportunities, and yet Sanlam Wealth does not yet have an internal ESG capability. Why is that?
“To really play the ESG market appropriately, I think your own business also needs to be investable from an ESG point of view,” says Polin. “You have got to do the right thing.
“You cannot just greenwash and effectively judge other companies in a way you are not prepared to be judged yourself. You have to get that piece right first. At the moment, buying in that capability from people who have been through that piece is important for us.
“Ultimately, however, I want to make sure not only do clients see the returns generated from these investments, but each one receives an impact score on their portfolio.
“That way, they can also see what social good they are doing. In a similar vein, we are looking to introduce an ability for us to help clients become carbon-neutral – allowing them, if they want, to elect to buy investments in this space or to buy carbon-neutral tokens and so forth. This would enable them to say that they themselves have gone carbon-neutral, which more of our younger clients are now wanting to do.”
Meaningful timescale
On a note not unrelated to behaving responsibly, how would Polin define value for money and how will the business look to deliver it?
“First of all, let’s not confuse value for money with ‘cheap’ – because that can often be what people think you mean here,” he replies. “Value for money is about that ability to deliver really good long-term returns for clients on an after-fee basis.
“Really, then, it is about transparency, access and consistency of return – and then making sure you analyse it over a meaningful period of time.
“Is it value for money to have a 1.5% fee on an investment product that actually produces a negative return in the short term just because that is the way the markets go? No – so you need to look at this on a five-or-10-year view. That is where businesses have got to be able to deliver.”
As for the kind of assets that might help with the quest for value for money, should investors – and by association advisers and fund groups – now be thinking beyond more traditional equity and bond investments?
“It is really important that they do,” asserts Polin. “I believe I look at my money through the same lens as our clients and I do not want to receive – as some organisations will give you – a global equity fund and that’s it.
“Absolutely, I want money in equities and bonds, but I also want to diversify away from that. That means I want exposure to the potentially better returns on offer from private equity, private markets, infrastructure and so on, where most institutional investors are putting their money.
“The biggest growth area in asset management is private markets and yet that is not feeding through to the retail investor in an easily accessible format.
“This becomes even more important when you look at the shrinkage, if you like, of public markets and the growth of private equity finance. There are ways to co-invest and there are some platforms that allow you to do that, or maybe you can sign yourself up to be a ‘professional investor’, but the mainstream asset managers are not opening it up to the sort of structures that bring the liquidity that allows a retail investor to participate.
“We need to find a better way of giving people access – and, by the way, I do not have an answer although I have just hired Haig Bathgate as our head of investments with a brief of finding one.
He ran the investment business for Edinburgh law firm Turcan Connell and then did an MBO out of that to set up Tcam, which was bought by Seven Investment Management in 2018.”
Bathgate joined at the end of March, “to head up investments in the new business and his job will be to decide how to access the appropriate investments for our clients in the best way”.
“Looking ahead more generally, though, I do think the product set from asset managers is going to become more institutionalised – regardless of what sort of client you are – and, at the end of the day, that should bring them greater value and better returns.”
A different conversation
One positive note to emerge from the pandemic years, notes Jonathan Polin, is the readiness with which financial services clients have embraced technological innovation. “When we first went into lockdown,” he says, “I told my team to try and encourage clients to use Teams, and so on, as a means of communication because it would do everyone so much good when – as I thought at the time! – we came out of this a few months later.
“What we have found, however, is clients are absolutely happy to connect with us in this way – although, less positively, it has also proved that wealth, certainly, and I think also asset management are just so far behind our retail counterparts in how we deal with clients in a digital environment. For our part, then, we are now working very closely with a US technology software partner InvestCloud.
“They already do an awful lot of work with wealth and asset management businesses in the US and now, here in the UK, we are putting together a digital layer so we can offer clients open banking and the ability to see the entirety of their financial advice journey. We want to add, for example, the ability for clients to see their largest asset – their house valuation – and link that to the valuation points.
“We want to be able to do a deal with comparison sites so we can say to our clients every year, free of charge, OK, here are the best three quotes for different types of insurance. And we want to be able to build a financial ecosystem that allows clients to talk among themselves and do everything virtually if they want to. Essentially, we want to develop the first advice hybrid of face-to-face, digital and virtual.”
As Polin puts it, however, wealth and asset management are so far behind on digital solutions they are “almost the dinosaurs of commerce” – so which retail operations does he believe the sectors have most to learn from? “If you look at what some of the challenger banks are doing – their processes and how they are trying to appeal to clients – the likes of Monzo are pretty intuitive,” he replies.
“Yes, of course, everyone is going to reference Amazon and Apple and the rest – and, absolutely, we need to learn from those – but there are some other much smaller businesses that are doing interesting things that we can learn from as well. Yesterday, for example, I was interviewing somebody to come and work with us on digitalising our proposition.
“She was perhaps 24 or 25 and had been working for Capco – a business and technology consultancy that is doing some really interesting stuff. Her whole take on how they position brands and test propositions in the marketplace was very retail-driven – and it was just a completely different conversation from those I have had with others. The question is, then, how do we attract more people like that into our businesses?”
Ultimately, Polin wants the app to have enough of an educational element that it ends up being used in schools. “We are so bad at educating our kids on finance in this country that they come into the real world totally unprepared,” he says. “That is bad for them, and it is bad for UK plc – plus, of course, it could have the additional benefit of them encouraging their parents to use the app, too.”
QUICKFIRE Q&A
What is the best piece of advice you have ever been given?
Don’t care what anybody else thinks – just do what you believe is right.
What is your ‘top tip’ for professional investors to help them run a better business?
Be brave – in running your business, maximising your digital solution and charging the right price for the right product rather than being tempted to discount your intellectual property, which in this world is all too easy to do.
What single issue should most concern professional investors at present?
That this long bull run must end at some point and markets will become incredibly volatile at the same time as we experience more geopolitical tension than we have seen for years and try to navigate a post-Covid, post-Brexit economic environment in the UK. What does that mean? It means you do not want to own highly correlated assets.
Does anything about your job keep you awake at night?
I am very lucky – I still only need four or five hours sleep a night so I fall asleep whatever is going. And, to be honest, there is really nothing so important about what I do that I should lie awake at night.
And what most excites you about your job?
What I am really excited about is trying to build something in this sector that really pushes the envelope of technology and brings a different set of investors into what we do.
If you were in charge of the FCA, what would be your priority?
It has to be simplification. We have to make things easier by cutting back on the bureaucracies – and, to help us do that, the FCA needs to digitalise itself.
And what advice would you give to someone starting out in investment today?
Whether you are in asset management or wealth management, just go out and learn everything you possibly can – and, particularly if you are young and on the wealth side, make sure you are dual-qualified. Qualify yourself as a portfolio manager and a financial planner, and the world will be your oyster.
MERGERS MOST HORRID
Given he has been involved in his fair share of mergers and acquisitions over his career, what is Jonathan Polin’s take on the uptick in such activity in the months either side of the pandemic?
“Defensive M&A is more prevalent in asset management now than it has ever been,” he says. “Just look at the examples out there – the big names doing ‘strategic reviews’, which tends to translate to ‘looking for someone to buy us’.
“And why? Because a lot of groups have a very old-fashioned product palette – UK equity and, if you are lucky, maybe global equity and a few regional funds – but that is not what asset management is all about these days. More importantly, from our perspective, as a wealth manager buying these products, we want to have access to a far broader reach of investments.
“We want to find ways to give our clients access to private markets, to private equity, to infrastructure and to other assets that are not absolutely 100% correlated to the market – which, looking through today’s lens, is less appealing for our clients to be in. So, in the asset management world, you have already seen a number of these big defensive-type deals happening.
“The problem is, these deals can often be disasters – cratering shareholder value, rather than increasing it – but you can absolutely see, for some well-known names that are full of old-fashioned products, the only way they can make themselves relevant to a marketplace is to be able to buy something that can give them a wider appeal to a far more discerning public.
“Also, while we are on the subject, on the wealth management side and particularly in the financial planning world, you are seeing huge M&A activity – and that is all about getting to scale.
It is less about buying different propositions or better technology but trying to make these businesses scalable in order to survive in a space where the bigger players will succeed – and only those that own the whole of the value chain can do that.”
At the risk of asking a stupid question, why is that so? “Advice businesses are pretty expensive to run,” replies Polin simply. “For one thing, every time you write new business, you introduce a potential mis-selling or regulatory issue for the future. That means you have to be able to ensure all the checks and balances have been done to give you the best opportunity for that not to happen with the business you are writing.
“Also, the cost of acquisition of those clients is high – because they are very much one-to-one relationships, they are largely still face-to-face and there is a lot of work that goes into holistic financial planning advice. That pay-off takes time and, since it normally comes from the overarching investment solutions clients are in over time, you need to get to scale to be able to actually run these businesses profitably.”
This article first appeared in the April edition of Portfolio Adviser Magazine.
