Just as Scottish Widows moved on Embark, so Aviva has moved on Succession, announcing its £385m acquisition of the IFA consolidator as part of its annual results this morning.

Aviva says the deal would “significantly” enhance its presence in the fast-growing UK wealth market as more people seek advice for their retirement options.

There be gold in dem hills!

There is a lot of gold in the hills for the mass affluent. Much of that gold has been hoovered up from occupational DB schemes offering unfeasibly high transfer values for the perceived value of the pension forsaken.

This £100bn windfall for the wealth management industry, is now being mined not just by advisers, but the insurers who buy them. Quilter’s move on Lighthouse was a little foolhardy, bearing in mind Lighthouse’s predilection for chatting up vulnerable steelworkers, but generally the strategy makes sense. Certainly when you can achieve these kind of fees on the money under advice.

SJP – showing the way to the insurance sector?

St James’ Place are very much the market leader in this area of the market and too big to be digested by the UK insurance market. Like Hargreaves Lansdown, they are capable of competing with the insurers for the nation’s wealth and I’d see the move from Aviva today as partly defensive, they do not want to see more leakage in value.

SJP has got where it has by creating a quality standard among its advisers which is impressive. It boasts high customer satisfaction ratings despite charging high fees. I have consistently said on this blog that the wealthy are prepared to pay high fees for being in the right kind of club.

Can the large insurers pull off the tricky feat of owning and controlling what are effectively a group of entrepreneurial financial advisers whose “raison d’etre” is independence?

“I’m an independent financial adviser and part of the Aviva Group” is a tough shout.

Of course we have seen insurers buying IFAs in the past, Aegon own Positive Solutions and Origen but the “tied agent” model, is not one that sits easily on those who consider independence a badge of honour.  Just how independent, Succession IFAs will remain, is a matter for conjecture.

Dark clouds looming?

Regulatory

The threat to the wealth managers is from the FCA’s attempts to provide competition in the market. The threat of a price cap on the total cost of ownership is the elephant in the room for the likes of SJP and all who follow in its wake.

2021 version

2019 version

there does seem to be some compression in the total cost of ownership , but not as much as the FCA would like!

Non-advised

There is a little evidence that the likes of Vanguard are driving prices down, new entrants like Intelligent Investor are providing flat-rate charging on Sipps and there is a thriving DIY market headed by Hargreaves Lansdown.

Collectives

At some point in the future, innovation will arrive and new products become available to challenge advised wealth management, DIY and the investment pathways (which nobody treads).

If the insurers can find ways to offer longevity protection within a pooled fund, then they have a retirement solution that could become a pension pathway.

Several progressive insurers are looking at collective solutions, at least for the proportion of their policyholders who can’t be considered wealthy. These typically have ownership of a substantial master trust as well as legacy books, where pensions are still considered  a “wage for life”.

But plenty of meat remains on the bone

But with such rich pickings to be found elsewhere, why should the likes of Aviva, Quilter, Scottish Widows and Aegon bother?

I suspect that the affluent consumer is quite content to continue its symbiotic relationship with the wealth management industry. The one needs each other as kings need courtiers. Many of the courtiers are as wealthy as the kings as flattery gets you even further than royalty!

I remain amused – maybe bemused, by how easy it is to make money in wealth management. For the various private equity backers of Succession, the sector must continue to look a goldmine!