Old Mutual Wealth’s (OMW) move to use technology provider FNZ in place of IFDS, with whom they had already shelled out £330 million, is a ‘remarkable saga’, as one platform expert described it.
When OMW chief executive Paul Feeney (pictured) announced earlier this month it would be switching providers for its mammoth replatforming project, the industry was momentarily stunned by the implicit admission of how far wrong things had gone with the undertaking.
In light of the Old Mutual group’s pending managed separation and planned initial public offering, float or sale, New Model Adviser® is looking at how the decision to use FNZ might fly with the company analysts, whose view could affect the success of the separation and UK company’s valuation.
Mark Polson, principal of The Lang Cat consultancy, said the amount OMW was going to pay FNZ, an estimated £120 million to £160 million, was still high.
‘This is a staggering amount to spend on a replatforming project. Even without the first £330 million, it is a lot. There are other, albeit less complex projects, coming in at a quarter of this amount,’ he said.
As Polson pointed out, analysts will have factored in these figures already but had to revise their calculations as OMW has revised its own budget.
The first draft of the IFDS replatforming budget back in 2013 was £160 million but this crept up to £450 million.
One industry expert was not convinced the announcement to switch providers would impress the analysts.
‘I would imagine the analysts would be very disappointed,’ they said. ‘They have been given a different number half a dozen times and there is no certainty this is going to be the final number.
‘OMW is going to have to do a great deal to restore confidence.’
The company hopes restoring confidence is exactly what this new deal will do.
Steven Levin (pictured), chief executive of OMW’s UK platform, said FNZ had dedicated resources to finishing the project and would share the risk of the project not succeeding.
‘Preliminary cost estimates for the operational delivery of the FNZ system are of the order of £120 million to £160 million, which includes internal costs,’ he said.
‘FNZ has a large global resource pool dedicated to platforms and has ring-fenced a dedicated and highly experienced team for OMW.
‘We have a strong customer-focused contract with appropriate risk sharing and termination clauses,’ he said.
What, if anything, is salvageable from the IFDS project? OMW worked with IFDS to build the Bluedoor back-end investment administration platform and worked with IFDS parent company DST on the Opendoor front-end solution.
However, OMW confirmed ‘nothing’ would survive from the previous project.
‘We will not be using any of the IFDS system,’ said Levin. ‘However, a significant part of any programme like this is in developing our own business and product needs, which will allow us to hit the ground running with FNZ.’
FNZ will at least provide an off-the-shelf solution, said Levin.
‘It also has an existing platform that we will configure for our needs while keeping the usability of our front end. So we are not starting from scratch,’ he said.
The work that has gone into the project by IFDS and all the code and solutions will be owned by the company [IFDS], so it has the power now to decide what to do with it.
However, Polson (pictured above) said although a great deal of money and effort had been wasted, OMW can hope the cost of the exercise will come in at close to the £450 million figure quoted in March 2016.
‘If FNZ does its numbers, the exercise is coming in pretty close to the original estimate. So it is kind of priced in already,’ he said.
Another drift from the original plan was the loss of the heritage business from the project.
OMW had wanted to include its Skandia Life products in the IFDS version of its platform.
However, in October last year the company announced it would be dropping this from the project and it remains ‘paused’ despite £100 million of the £330 million total having been spent on trying to move these across.
‘Our programme to re-platform the closed life book of Old Mutual Wealth Life Assurance Limited (the Heritage business) remains paused as announced in October 2016,’ said a press statement.
It could be reintroduced later but the cost of that is being safely kept out of the current budget.
The fact it fell out of scope last year would have freed OMW to work with an alternative technology working on a more off-the-shelf and less bespoke way.
Independent platform consultant Stanley Kirk (pictured above) said it was interesting OMW did not announce an accompanying reduction in cost when it would not be moving the heritage business.
‘That was a really, really big downscaling in the project at the time, whereas they did not announce any reduction in the costs,’ he said.
‘They were talking about £450 million and they took away a big chunk of the project, whereas costs did not reduce.’
Kirk added one example of the challenges could have been unit prices. ‘The stresses and strains of the whole process, including calculating unit prices, could have proved too challenging,’ he said.
Removing the risk
FNZ’s strength is not in legacy products but, as Levin mentioned, it does have a track record in the UK market, which should calm some shareholders’ nerves.
Yet despite working with Standard Life, Aviva and Zurich already, does the software provider have any real experience in an OMW-scale project?
Levin cited examples that show FNZ is more than up to the job.
‘FNZ has 11 clients in the UK, including adviser and direct-to-consumer platforms with assets under administration in excess of £80 billion,’ he said.
‘FNZ has already implemented its service for other major UK financial institutions, including three complex bank migrations.’
Polson agrees FNZ will de-risk the OMW business.
‘The language they used sounds corporate but it is true,’ he said. ‘They did de-risk the programme. They did that by saying they would have to use something other people have got because they know it works,’ he said.
Levin said OMW was using a ‘proven UK solution with a single supplier rather than converting an overseas system to work in the UK market’.
A notable difference is that FNZ is a regulated dealing and custodian services provider, while IFDS is not.
‘FNZ provides dealing and custodian services as well as software,’ said Kirk.
‘IFDS and FNZ do this but FNZ does it as a regulated entity, whereas IFDS do it as a third party provider.
‘It de-risks the Old Mutual Wealth business a little bit, because if FNZ make a mistake, it would be their mistake instead of Old Mutual Wealth’s. They have got rid of part of the responsibility,’ said Kirk.
Back from the brink
Finally there is the question of the consultants. OMW had appointed KPMG as management consultants for the platform project. It also used the expertise of digital consultancy Accenture. It would not disclose how much of the project spend to date had gone into the pockets of the consultants but our anonymous industry expert estimated it could be as much as £100 million.
They are useful for reporting to the board of the hiring company, so it has clear oversight. By that logic the consultants would stay on for the switch to FNZ.
We asked IFDS chief executive David Moffat for his view on the dropped OMW contract, but he declined to comment.
‘We never talk about client affairs,’ he said. ‘We leave them to comment as they will.’
As more of the analysts’ views come to light, it will be interesting to see whether this move from OMW has succeeded in rescuing a project that to some looked dangerously close to being ditched altogether.