Word on the street is, platform behemoth Cofunds is up for sale. The parent company Legal & General apparently appointed Fenchurch Advisory Partners to find a buyer for the platform.
Cofunds is the largest platform in the UK with over £76b of assets, presumably this makes it a crown jewel any provider serious about keeping a foothold on UK market would want to hang on to? So why is L&G, who paid £131m for 75% of the platform (valuing the business at £175m) just over two years ago looking to offload it?
The answer to that question may lie in something we’ve talked about before – replatforming! Cofunds runs on the IFDS back office system – FAST, having abandoned its own proprietary back office system called Lisa in 2003. FAST was designed primarily for the fund supermarket world and not the wraps world. It is now officially a legacy technology – IFDS has a new generation platform back-office system called Bluedoor. Accordingly, Cofunds has little choice but to eventually migrate to a new technology system. Failure to do so means its already significant cost base will continue to spiral; margin will be further squeezed and technology/systems will eventually fall apart.
Last year, it was rumoured that Bravura was in the pole position to win the bid for the new back office system but this appear to have stalled, apparently due in part to the fact that the cost of doing so will run into tens of millions of pound – between £40M to £60M according to some estimates! Clearly, L&G is having a rethink as to whether it is prepared to pony up that much additional capital, bearing in mind that;
- The total dividends paid by Cofunds since its inception 15 years ago is …ehrr… zilch! Yup, it has never paid a penny in dividends to its shareholders.
- Cofunds wrote down £117m of losses in 2011 by reducing its share capital. If we take that into account, it has actually yet to recoup its initial development cost of building the platform.
- Latest accounts (Dec, 2014) show a pretax profit of £7.7M on a turnover of £79M – barely a 10% profit margin. At that rate, how long will it take L&G to recoup its current investment, let alone additional investment? Your guess is as good as mine.
- This is happening while Cofunds is dealing with Sunset Clause – having to move around 40% of its assets from commission to fees. This is already having an impact on revenue – despite increasing AuA by £5billion in 2014, revenue pretty much stood still, although it did manage to increase profits!
So it’s completely understandable that folks at L&G’s padded City offices are looking for someone to take the behemoth off their hands!
So what does this mean for advisers?
Choose your platform friends very carefully. I’ve said it before and I’ll say it again:
If we accept that a platform is a key partner for an advisory business, rather than just a product sold to client, perhaps adviser would put their platform partners under greater scrutiny. A platform might be cheap but if technology isn’t up to par, advisers end chasing their tails just to get the platform to play its role in delivering the service promised to clients .
Enough said. I’ll now go and lie down quietly in a dark room, waiting for a very angry phone call from L&G/Cofunds PR.