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Gars to 1825: 8 hot topics in Standard Life Aberdeen's results

Ahead of the combined group’s results tomorrow we take a look at what could be some of the highlights.

The results of the mega merger 

Tomorrow marks a significant day in the history of Standard Life Aberdeen

For Europe’s largest asset manager tomorrow will be the group’s first annual year results since the merger between Standard Life and Aberdeen which created a £670 billion colossus.

That deal was completed in August but since then the combined group has faced some significant challenges.

Perhaps the most pressing of these came last week when Scottish Widows announced it would be pulling the £109 billion Swip funds mandate from Standard Life Aberdeen.

Combined the group includes three investment platforms, a growing advice arm as well as its traditional asset management and insurance wings. Even six months after the deal was completed there are still questions over which direction we will see the group move in and which areas of the business it will focus on and cut back in.

We take a look ahead at what we might see from the firm’s annual results tomorrow.

The results of the mega merger 

Tomorrow marks a significant day in the history of Standard Life Aberdeen

For Europe’s largest asset manager tomorrow will be the group’s first annual year results since the merger between Standard Life and Aberdeen which created a £670 billion colossus.

That deal was completed in August but since then the combined group has faced some significant challenges.

Perhaps the most pressing of these came last week when Scottish Widows announced it would be pulling the £109 billion Swip funds mandate from Standard Life Aberdeen.

Combined the group includes three investment platforms, a growing advice arm as well as its traditional asset management and insurance wings. Even six months after the deal was completed there are still questions over which direction we will see the group move in and which areas of the business it will focus on and cut back in.

We take a look ahead at what we might see from the firm’s annual results tomorrow.

Gars flows

One significant headache for the nascent Standard Life Aberdeen group is the performance of Global Absolute Return Strategies (Gars) – the fund giant which now sits in the asset management division Aberdeen Standard Investments.

A broker note from UBS in December noted Gars saw outflows of £8.1 billion for the first nine months of 2017. Aberdeen Standard Investments admitted there have been outflows from the fund but claimed it has a ‘a strong pipeline of new global business’.

It will be interesting to see if the fund is able to stem its outflows tomorrow. One thing that should be noted is the performance of the fund has picked up in recent months.

Citywire head of investment research Frank Talbot commented last month: ‘Gars has been an easy target to mock. Its fall from grace from the middle of 2015 to the middle of 2016 was unexpected and resulted in the fund falling by 6.7% over a 13 month period. However, since then the ship has been righted and it has returned to the steady performance profile that brought it so much success.’

 

 

What next for 1825?

Following the merger there were questions as to what would become of Standard Life’s restricted advice business 1825.

Speculation about what would happen to the advice arm increased after the Almary Green deal collapsed in September 2016 and there was an 18 month period where 1825 did not make any IFA acquisitions.

It also overhauled its leadership team, appointing Julie Scott (pictured) as its chief executive. 

During an interview with Citywire (which you can watch here), Standard Life Aberdeen's joint chief executive Keith Skeoch backed the group to keep 1825 last June.

‘In the modern world I think advice will become increasingly important. It is about the way we connect with the end customer,' he said.

Since then the firm has made two more IFA acquisitions suggesting 1825 will continue as part of Standard Life.

How much prominence the advice arm receives in the results tomorrow may suggest how important it is viewed by the plc. The results could also reveal how much it has spent on buying advice firms. 

Swip swiped

Standard Life Aberdeen always knew it was going to be difficult to keep hold of its mandate for the £109 billion Scottish Widows funds that Aberdeen had run since 2013.

Documents released at the time of the merger acknowledged that the deal with Scottish Widows was likely to be challenged given that Aberdeen was merging with one of the Lloyds-owned pension provider’s biggest rivals.

But Standard Life Aberdeen did appear to be confident that some sort of deal could be struck. Reports suggested a merger or joint venture between Scottish Widows and Standard Life was on the cards, something that could have potentially salvaged the agreement.

However last week Scottish Widows confirmed it would ditch the agreement and start a bidding process for someone else to take over the running of the funds.

How will the results deal with this? Standard Life Aberdeen has already said it expects a £20 million hit from the decision, but will there be other effects? Will there be new deals on the cards? Will directors’ pay packages take a hit? Or could a last minute agreement to save the Swip funds be pulled out of the hat?

Platform triple

In the combined plc there are three retail investment platforms: the Standard Life Wrap, Elevate and Parmenion.

Again after the merger announcement last year there was uncertainty over whether or not all three platforms would be kept.

Speaking with New Model Adviser® last October Gerry Grimstone, chairman of Standard Life Aberdeen, said that having three platforms ‘makes sense’ for the business.

Perhaps part of the reason why all the platforms are being kept is that inflows have been so strong in recent months.

In a trading update for the nine months to 30 September Parmenion saw net inflows of £1 billion and Wrap and Elevate saw net inflows of £5.4 billion.

With a surge in demand for defined benefit transfers and the ongoing popularity of pension freedoms, it appears likely these platform inflows will be strong again tomorrow.

Aberdeen outflows

Before the merger the majority of headlines about Aberdeen were focussed on outflows.

In 2014, for example, the company recorded £20.4 billion gross outflow across its funds, particularly in its emerging markets division. In 2016 the figure was still a high £20 billion, with net outflows at £9.1 billion.

A trading statement covering the first nine months of 2017 showed the picture was much better for the merged company when it came to net outflows, which were close to zero, but not for gross outflows, which hit £23.8 billion.

How will the company fare in its full year results? Gars (see earlier) has continued to struggle, and it could be a problem if Aberdeen continues to see the rate of outflows rise from its own funds. 

FCA reviews

At Standard Life’s results last year the insurer announced it was setting aside £175 million for the Financial Conduct Authority’s (FCA) thematic review into non-advised annuity sales.

Standard Life said it would continue to work with the FCA on this review going forward. We might see a little more detail tomorrow on how that work has been going.

On the subject of the FCA it is also likely there will be a comment around the regulator’s Asset Management Market Study which is putting the squeeze onto asset managers’ fees.

We might see some comment around how significant this piece of work is to Aberdeen Standard Investments’ business model.

Synergies

In the prospectus for the merger between the two giants the word ‘synergies’ appeared 58 times.

The group said it expects £200 million per year to be saved from these synergies. There also has been a lot of talk about job cuts because of these ‘synergies’, with initial expectations that 800 staff would be lost because of the deal.

Look out for further details of how these ‘synergies’ are going tomorrow.

Workplace pension assets

Another likely strong point for the group tomorrow will be workplace pension assets sitting within the insurance arm Standard Life Pensions and Savings.

For the nine months to September 2017 net inflows for its UK workplace pension business were at £1.4 billion with total assets of £37.4 billion.

Given the increase of auto-enrolment coverage this year, these inflows are again likely to be up tomorrow. As auto-enrolment rates rise in April this could be a source for further profit for the business.

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