This is hardly surprising as a combination of new regulations, greater use and understanding of technology, the need for speed, improved transparency and value for money are all pushing individual investors and intermediaries down the platform route.
Mirror mirror on the wall…
With £50bn in assets under administration, Cofunds is the biggest of them all and, according to several pieces of independent research, is expected to get bigger, partly at the expense of the smaller operations.
Whether or not they have too much influence is a debate for another day but there are enough fund groups working with them to distribute billions of pounds of intermediated and execution only investment business to know they are here to stay.
Given its huge size in what is a scale business, Cofunds has a louder voice than most yet what we have heard recently is the defence of the large number of senior and very senior management departures in a very short space of time.
It all seemed to start with the announcement, in March this year, that Legal & General was to be Cofunds’ sole owner, having previously been a 25% shareholder.
In May the deal was approved, with chief executive Martin Davis standing down but working with his replacement – L&G lifer Chris Last – “towards a smooth transition of ownership, with a view to the acquisition being completed in June”.
A week ago, John Pollock, chief executive of Legal & General Assurance Society, announced Last’s retirement – after 40 years with one company but just four months with Cofunds – having “successfully guided Cofunds through its integration phase”.
As an aside: Last, as anyone who has worked with him will know (trust me – I have!) is a consummate politician though, ironically, internal politics may have played a role in him standing down after just 100-or-so days in this particular role. Surely Davis could have just as easily been persuaded to successfully guide Cofunds through its integration phase…
David Hobbs, with 26 years’ service at L&G including three as managing director of Suffolk Life (owned by Legal & General since 2008) is taking over as its third CEO in almost as many months.
Rough and smooth
He is inheriting a business that between March and the end of September this year has lost five institutional shareholders (International Financial Data Services, Threadneedle, Newhouse Capital Partners, Jupiter and Prudential), two chief executives, one chairman (Charlie Eppinger), a marketing director (Verona Smith), HR director Vivienne Hole, managing director of operational services Stephen Mohan (to Allfunds Bank), and head of group fund relations, Michelle Woodburn.
But what he is also inheriting is a business that is the largest of its kind in a retail environment where 75% of new investment business is written on platforms. Its share is also likely to increase as there have already plenty of independent pieces of research published that talk about consolidation in the UK platform space, with the bigger players – and Cofunds, FundsNetwork and Skandia are always named – likely to benefit through single or even multiple acquisitions.
Hobbs is unlikely to get involved in any acquisitions straight away, partly because there is a degree of steadying of the managerial ship to be done first, but also because his parent company has only just forked out £175m on its own acquisition and will expect an upturn in its profits of around £6m before spending any more.
Revenue sources to change
More likely, its assets under administration will at least grow in line with the market and, under Last’s tenure, the target was to double assets to £100bn within five years.
Where Cofunds makes its own money will have to change over this same timeframe as it will get harder to rely on the levels of revenue and profit from the platform charge it does at the moment. Thankfully, there are plenty of new avenues to explore.
Given its ownership structure under one single shareholder that is a huge life company with diverse earnings streams, adding annuity and protection business, for example, to make even more of a client’s financial assets available, manageable and therefore chargeable on a single platform would not be too much of a stretch.
Also, such are L&G’s existing, exclusive agreements with UK building societies, 87% of their combined customer base has access to L&G’s RDR (i.e. whole of market) proposition that includes funds, unit trusts and ISAs. At the moment these assets sit on its own internal platform system, IPS (officially Investor Portfolio Services) which uses technology powered by Cofunds.
These two, IPS and Cofunds, offer up a strong multi-channel proposition for building societies and bancassurers, intermediaries, self-directed customers and institutions that means sources of revenue should diversify nicely in the next five years.
As with every other platform CEO, I am sure Hobbs will not be content with just retaining market share so, as long as he has some people to share ideas with at his management meetings, then Cofunds should comfortably fulfil is strategic growth role within Legal & General.
