After a prolonged period of uncertainty, Aegon’s acquisition of Cofunds is good news for Cofunds users and good news for the industry.
Whilst the sale of Cofunds for £140m represents a £65m net loss for Legal & General, it is in line with L&G’s stated strategic intent to focus on its corporate assets. Some might argue that L&G has secured an excellent price for Cofunds given the £700m in outflows from Cofund’s retail platform between June 2015 and June 2016 and its creaking technology.
But we think that Aegon’s move is shrewd.
The investment distribution deal with Nationwide is a real coup for Adrian Grace and Cofunds opens up access to a new pool of advisers.
One of the potential risks that prospective buyers will have weighed is the relatively mixed nature of Cofund’s retail book. There is likely to be a reasonable percentage of orphan clients in the mix.
But Aegon needs customers in the funnel.
Its horizontally integrated proposition spans D2C, advised and workplace, meaning that it can service the whole spectrum of Cofunds’ clients. And advisory firms wanting to head for the exit are likely to have done so by now. We think that many firms will wait to see what Aegon can bring to the table rather than immediately voting with their feet.
Cofunds users will care about functionality and Aegon has a more comprehensive range of tax wrappers and products to offer, including ETFs. They will also care about price.
For low to average portfolio sizes, Cofunds pricing is at the cheaper end of the scale whilst Aegon’s is a lot punchier at around 45bps. But Aegon’s fees are 0 per cent for assets over £250,000 – effectively capping charges at £1,215.
For portfolios of £500,000 and up, Aegon is cheaper than Cofunds. Aegon is clearly making a play for larger portfolios.
The Cofunds retail book is concentrated in ISAs and GIA – only 4 per cent of assets are in pensions as at Q4 2015 – and Aegon has a strong pensions pedigree. Aegon’s pricing strategy suggests that it is betting that advisers using Cofunds will look to consolidate pension assets alongside ISAs and GIA on an integrated Cofunds/Aegon platform to take advantage of the attractive pricing for larger portfolios.
If this strategy is to pay off, Aegon must be at the top of its game because other platforms will be circling.
There is hard graft ahead for the Aegon team – it must boost its brand and reputation with a broader base of advisers.
Aegon’s platform comes in for some criticism from users for ‘not being adviser friendly’ and any D2C play for orphan clients must not come at the expense of advisers’ trust.
Aegon must now deliver on its target of achieving £60m of cost savings by migrating Cofunds on to its more modern technology. The £80m one-time expense should stop costs from spiralling.
However, we see this as ‘smart consolidation’. Far from being a naked asset grab, the Cofund’s acquisition is logical, unlocking significant opportunities to drive forward Aegon’s horizontally integrated proposition.
We hope that the Aegon team will rise to the challenge.
Miranda Seath is a senior researcher at Platforum