Regulation will push more providers to sell wealth divisions

A fundamental misreading of the impact of the RDR makes the sale of businesses like Axa Wealth inevitable, say advisers and market experts.

Axa Group is planning to sell its wealth business as it seeks to withdraw from the tightly regulated UK market, and advisers and analysts say the growing burden of regulation and increasing competition will prompt more merger and acquisition activity.

Lloyds Bank Commercial Banking director of pensions, wealth and stockbrokers Robert Hare says: “There are lots of discussions going on in this area. The burden of regulation that businesses have to deal with are a massive challenge. For the more established firms, which may have fairly old and inefficient systems, margins will have become very competitive because new entrants are agile and nimble.

“As a result, we’re now starting to see consolidation come to fruition. If you have scale and agility, the UK is still a very attractive place to do business. Some of the UK-centric businesses that can handle scale and efficiency would be interested in buying up competitors. Undoubtedly there will be one or two very interested in these sort of opportunities.”

Jenkins Financial Services principal Steven Jenkins says providers got the impact of the RDR “fundamentally wrong”.

He says: “The sector is going to continue down the merger and acq-uisition path – a lot of providers got RDR fundamentally wrong. They felt it was an opportunity to enhance their business, boosting profitability by not paying commission, but the contraction of advisers has actually made it go the opposite way.

“Now they are realising the harsh reality that new business has always been the driver and it’s dropping away. The easy route, rather than making a change, is to just sell up – they are only custodians, after all.”

Plan Money director Peter Chadborn says: “When I heard they were up for sale, I thought, ‘Thank goodness we didn’t use them.’ When they were promoting the platform and funds, they said there was a discount on the fund charge.

“At the time we saw that as a negative – we felt it would tie us in because we’d lose the discount. We suspect they were just buying in business and for that reason didn’t use them.

“We’ll see more mergers and acquisitions because every wealth provider has decided they need to be offering a platform because that’s the direction of travel – but some will get it right and some won’t.”

The French insurer is believed to be searching for a buyer for the UK wealth division, which includes the Elevate platform, Sipps, onshore bonds, corporate pensions and its multi-manager arm Architas.

Sources say Barclays has been appointed by Axa to handle the sale on its behalf, while corporate advisory firms are pitching to represent private equity firms interested in buying. An insider says: “There are lots of people out there looking at buying part of the business or the whole thing.”

A spokesman for Axa says: “We do not comment on market speculation.” Barclays also declined to comment.

Axa Wealth’s half year results, published in August, show that Elevate saw a 20 per cent rise in assets to £10bn in the first half of the year, with £1.1bn in inflows in that period driven by the pension freedoms.

The platform hit the £10bn assets mark in May, following record new money taken into the platform in March.

Total Axa Wealth funds under management grew 13 per cent to £29.1bn, up from £25.7bn last year.

Platforum data shows assets under administration grew 20.6 per cent, or £1.72bn, year-on-year to June. However, this is slower than the platform market as a whole, which grew 33 per cent overall.

Platforum research director Heather Hopkins says: “Elevate is much maligned by competitors as lacking direction and has a reputation for being difficult to work with.

“However, Platforum adviser reviews and AUA data suggest the firm is turning things around after a difficult 2014. The adviser platform outperformed competitors in AUA growth in Q1 and Q2. Axa has always been strong on pensions and so is a beneficiary of the pension reforms.”

In 2010, Axa sold its UK life and pensions business Friends Provident to Resolution in a £2.75bn deal. Friends Provident became Friends Life, which was in turn sold to Aviva in April this year.