The latest strategic manoeuvre by traditionally low-profile and closed book consolidator Phoenix Group has ignited considerable interest in the financial services industry after the announcement of a “simplification and extension” of its strategic partnership with Standard Life Aberdeen (SLA).
By agreeing to sell the historic Standard Life brand to the insurer, the door is now open to a potentially dramatic shift towards a new business product range and an overarching stated ambition to become a “market leader”.
But this will require a different, much more outward-looking culture within Phoenix, which will test the business – an overseer of more than £330bn in assets – in complex ways.
“The purchase of the brand is a shortcut to public awareness, and it helps that many of the people who are at Phoenix worked for Standard Life, so it’s quicker and cheaper to link into that than create something from scratch”, says Mark Polson, founder and principal of the lang cat, the specialist platforms, pensions and investment consultancy.
One of the obvious problems with buying closed books appears to be addressed by this latest deal, as Simon Willoughby, managing director of finance sector business consultancy Acuity, points out: “It’s almost like a bucket with a big hole in the bottom and unless you can keep finding more businesses to throw in the bucket ultimately the bucket will empty.
“Based on my experience, whenever a company closes to new business it gets lazy and indeed there have been complaints to the regulator that the policyholders of these closed books get poor service, papers written on it and fingers wagged.
“But if a company is open to new business, it must be commercial, smart and look after the customers it’s trying to attract. If you’ve got a good brand there and for the health of your business over time you need to be writing new business as well as looking after existing policyholders.”
An important element of the deal highlighted by Andy Curran, CEO Savings and Retirement, UK & Europe, Phoenix Group, is how the well-established Standard Life brand gives “full control” over its propositions.
Curran says the transaction allows both SLA and Phoenix to focus on their core strategies and to unwind some of the complex intra-group arrangements that had been put in place at the time Phoenix acquired SLA in 2018.
At the same time, Phoenix has re-committed to a 10-year strategic asset management partnership with SLA.
“The acquisition of the Standard Life brand is part of our overall Open business growth strategy to accelerate investment within this market to meet its ambitions to be a market leader,” Curran explains. “It gives us end-to-end control of our business, and allows us to deliver more comprehensive and streamlined, customer-centric products and services across all channels. This better positions us to optimise shifts from the restructure of the market and drive better outcomes for our customers as they journey to and through retirement.”
He adds: “Our ambition is to be a market leader in the retirements and savings market and this transaction marks a pivotal moment for us as we continue to grow a strong and sustainable business.”
For financial advisers, having a good strong brand to recommend is patently important and this deal clearly aligns the Standard Life name with an insurance-focused business rather than an asset manager.
As Willoughby says: “One of the things financial advisers don’t like about Standard Life is that they just want to hoover up the assets, whether it’s a pension or general investment account or a life product. So, there is a space for dedicated life insurance-based solutions.
“It’s a lot easier when you’ve done your fact find if you recommend Standard Life as most people will go ‘Oh yes, fine’ but if it was the XYZ company maybe they wouldn’t. It’s a strong brand with a good heritage and it’s a stronger brand than Phoenix from a new business perspective.”
It will be certainly be interesting for adviser firms to look at what the product sets Phoenix starts to manufacture, particularly against the market backdrop of continuing substantial flows into the dominant insurers such as Prudential and Royal London.
“A lot of platforms would give their eyes teeth for that [asset flow] and Phoenix clearly has opportunities in that insured off-platform hybrid kind of space”, says Polson.
“What they can bring with the heritage of brand of Standard Life at their fingertips, with the fact that they are an insurer with a balance sheet at their fingertips, which they can deploy in a number of different ways and with considerable scale as well – and I would expect them to look to create products which sit next to the platform space but aren’t exactly the same.”
There would be no point in taking on the likes of adviser platforms Transact and Ascentric but instead to look at manufacturing solutions that are easy to use, probably low cost and with modern technology, he says.
“Products are one thing, but the servicing will be absolutely crucial because the nature of closed book insurers is that service does not delight advisers and I know some advisers that have some quite unkind things to say about Phoenix, so there is an open opportunity for them to move on from what is not the finest base in terms of service proposition”, Polson argues.
Phoenix’s Curran says the branding deal does show its commitment to open business and “our relationship with advisers is an important part of this”.
He continues: “The off-platform adviser market is a key part of our long-term strategy and having a simplified model means we will have greater freedom to deliver our ambitions. We are committed to providing distribution and relationship management services to a high-standard. Combined with the brand ownership we are now ideally positioned to deliver a streamlined and cohesive experience to off-platform advisers and clients.
“Advisers should expect to see enhancements and innovations as a result of this transaction. It gives us end-to-end control of our business, and allows us to deliver more comprehensive and streamlined, customer-centric propositions and services to advisers and clients.”
Will Phoenix become Standard Life?
As for infusing the business with staff who have relevant backgrounds to implement this big evolution in strategy, members of Standard Life Aberdeen’s senior leadership teams for marketing or distribution will not be joining Phoenix as part of this transaction, Curran says.
However, Sangita Chawla has already been appointed as marketing director for its savings and retirement business, with responsibility for driving revenues through integrated marketing campaigns that position Phoenix as the natural choice for employers, trustees, advisers and customers.
“Sangita joined us in February and brings a broad and deep understanding of DC, Master Trust and retail savings, both in the UK and internationally. We have also appointed Colin Williams as managing director, pensions and savings, and Colin will be joining us in a few months’ time”, Curran says.
“These appointments reflect the strong foundations we are putting in place, as we continue to grow a strong and sustainable business that will help even more people on their journey to and through retirement.”
Graham Bentley, founder and managing director of investment marketing consultancy gbi2, observes that there is a payment being made to move people back into Phoenix and “quite clearly they wanted a functional marketing and distribution arm to grow the brand, so why not start with the Standard Life brand, which is a cachet for sure”.
In terms of the branding review, an assessment Phoenix announced it is undertaking, to be concluded before the end of the year, Bentley says: “I don’t think anybody is going to be surprised if 12 months from now there’s a reveal that says all this work has been going on in the background and the whole business is going to be rebranded as Standard Life.”
While Phoenix continues to be acquisitive for closed book business, seeing a big market for this particularly in Europe, by taking on the brand there is a clear intention to source new business with the brand thereafter.
Bentley points out here that Phoenix’s book of pension funds means “ultimately those people retiring invest in an annuity business which sits at the back of that as well so you can see how potentially there a long product line to go even with a closed book”.
“If you have customers typically staying where they are rather than stopping around and respecting the Standard Life brand then you imagine Phoenix wants to take advantage of that. But while they have to look after customers they also have to look after shareholders too, and this is a cash/dividend business from the investors’ point of view.”
‘Safe and dependable ally’
Curran says the transaction leaves the pensions and savings business of Phoenix Group in a strong place, highlighting that across its open and Heritage business it already has 14 million customers with insight programmes such as sponsorship of a research report in partnership with the International Longevity Centre into the challenges that many people in Generation X face when it comes to having a secure financial future.
“Our scale and expertise mean we have a vital role to play as we navigate the shifting pensions landscape, ensuring we are a safe and dependable ally in the journey to and through retirement”, he says.
“Our Workplace business and our Customer Savings & Retirement business will benefit from dissolution of the CSPA, through ownership of the Standard Life brand and control over marketing and IFA distribution. We will be welcoming around 60 new colleagues who will bring further expertise to our Open business. We will continue to invest in innovation and the Standard Life brand for the benefit of customers, clients and their advisers.”
The deal also tidied up some legacy issues relating to the Transitional Service Agreement that was in place between the two companies. “This transaction brings that Agreement to a close, while at the same time simplifying our partnership, refocusing it on asset management expertise and giving us control of the end-to-end journey and proposition for customers and their advisers”, Curran explains.
The fascination for industry observers is to see how the ‘mighty’ Standard Life, as it used to be labelled, reinvents itself for the 21st century with this latest twist under a surprisingly different kind of ownership.
The Standard Life Assurance company can trace it origins back to The Life Insurance Company of Scotland established in 1825, part of which later, in 1832 because Standard Life Assurance. Fast forward to August 2018 when Phoenix acquired it.
Polson recalls two highlights in the Standard Life annuls, the first of which was the mammoth demutualisation: “That was an incredible process, there were placards outside the building ‘save our Standard Life’ with people really resisting that change. And then after that, there was a drive from a number of insurers I worked for, Scottish Life at the time, towards capital-light business meaning business that does not draw heavily on the balance sheet, particularly for commission.
“Standard Life did move that way prior to RDR (retail distribution review) and that was another inflection point and what you can see from demutualisation to capital-light through to RDR and platforms is that unbundled non-insured business being the focus over that 20-year period, those three spikes take you inexorably to where you are now. You can see the journey and others have been on it too.”
He adds: “There’s a lot of emotion built into it, if you are someone in Edinburgh it’s one of the grand old names, and I used to work there – as did almost everybody. It’s quite hard not to have worked for Standard Life – if you’re from Edinburgh – at some point!
“Phoenix is an insurer, as opposed to an asset manager with a platform and some products attached, which is what Aberdeen Standard is with its centre of gravity in investment management. Maybe over time, once the dust settles, this will feel like a return to – not to pre-demutualisation – but simply an insurance company Standard Life, which many of us grew up with.”
While Bentley muses: “Insurers have to be big because the margins have relatively narrowed compared to where they were 30 or 40 years ago. I don’t know whether it’s someone sitting at the top there saying ‘I have this grand plan for global domination of the life assurance industry’ or whether its ad hoc opportunism.”