Just as we started collating data for our next Platform Profitability Guide, we’re hit with the news that Axa has apparently put the entire Axa Wealth business on sale – Elevate platform, SIPP, corporate pensions, Architas – the whole lot!
You probably didn’t that coming, did you? Well, you should have read our guide 🙂
Elevate now has well over £10billion AuA – after growing 20.6% year-on-year to June, according to data from Platforum. Presumably, things are really looking for up the business, so why would any provider in their rightful mind want to sell?
Well, we made the point in our last platform guide about how the industry’s obsession with AuA mask a much bigger problem with many platform – the neglect of the bottom line. In the report, we noted that…
The reality is that loss-making platforms, even if they are owned by parents with deep pockets, are more likely to suffer underinvestment in technology/ services in the future, be acquired or exit the market. If a provider exits or is acquired, it is the advisers (and potentially clients) who will be left to pick up the pieces.
Accordingly, advisers must put platforms under greater scrutiny about profitability. Advisers should be asking; Is this platform business making money? If not, when do they expect to become profitable? Where is future investment in technology going to come from? Is the platform business heavily reliant on its parent company and what’s to say the parent company won’t cut off the umbilical cord if they continue to be loss-making?
[bctt tweet=”Profitability and long-term sustainability should be at the heart of platform due-diligence.“]
We handed Elevate ‘poor’ on FinalytiQ Platform Profitability Rating and made some very specific comments about the business;
Despite having the highest AUA in the mid-sized platform category, Elevate has failed miserably to make a profit and losses continue to mount. Going by its P&L Account Reserve, the business has spent well over £100M since getting the business off the ground, which is more than ten times the amount spent by its peers Nucleus and Ascentric, but there’s no evidence whatsoever that Elevate is any better in terms of service or technology. This begs the question: what are they spending this money on? Piling up loses with no end in sight in the name of ‘investing’ in the business is no way to run a platform.
Are we being a bit harsh on Elevate? Well we don’t think so. We do think advisers and platforms should have a grown up conversation about profitability and long term sustainability of platforms. In fact, Axa Wealth’s problem may be even much deeper than you think.
- Elevate platform operation sits with Axa Portfolio Services, which has accumulated £112 million in post-tax losses since the inception of the platform in 2008. That’s based on accounts filed y/e Dec, 2013. The accounts for y/e Dec 2014 hasn’t been filed at the Companies House yet – so if the folks at Axa could advise their auditors (PWC) to get their finger out on that one, it will speed thing up a little bit for our next report.
- Axa Wealth Limited, which is the pension and bond product manufacturer – turned a post-tax profit of £40 million in y/e 2014, the first since the re-organisation that saw Axa’s legacy life and savings book sold off to Friends Provident in 2010. But that business is still sitting of £131 million hole on its P&L Reserve, a result of accumulated losses over the previous years.
- Axa Wealth Service Limited, which is responsible for distribution of products and Elevate platform – hasn’t turned a profit, let alone paid any dividends to the group since 2010. That too is sitting on £28 million accumulated losses, as at year ending December 2014.
Now do the math, is it any surprise that the parent company might be looking to get rid of these businesses?
The argument is often made that lifeco platforms aren’t designed to make profits, but rather to serve as a distribution channel for the group’s products and funds. Elevate is the poster child for this point of view – you could buy Architas funds cheaper on Elevate platform. But has that given Architas a great deal of advantage that justifies plowing a quarter of a billion pounds into the platform and distribution businesses? We think not.
- Architas was set up in 2008 – about the same time as Elevate and has been profitable since 2012 but margins aren’t superior to those of other asset managers and definitely not high enough to justify that level of losses in the platform business. Latest account (y/e Dec 2014) shows a post-tax profit of £4.5 million on a turnover of £47.6 million – a profit margin below 10%. Hardly impressive!
The point is, if ownership of a platform is supposed to give the asset management business a competitive advantage, it’s not showing up in these numbers.
This highlights why, when looking at platforms, it helps to divorce the platform business somewhat from its parent company. Is this platform business sustainable in its own right? Does it contribute the bottom line of the parent company? The idea that insurers somehow have unlimited financial clout and can throw hundreds of millions of pounds at their platform businesses with no profit is sight is a complete and utter nonsense.
With Axa apparently looking to flog Elevate, L&G to flog Cofunds, and Alliance Trust’s shareholders making a big fuss about ATS’s losses, advisers have to take providers’ deep pockets at face value, and put profitability and sustainability at the heart of platform due diligence.