Skandia’s platform business is set for profitability after ‘swift’ cost-cutting measures that included the axing of 200 jobs, according to Paul Feeney, chief executive of parent Old Mutual Wealth.
Feeney (pictured) said the platform had reached profitability this month on a run-rate basis, reversing losses that had hit £5 million in the first half of last year. He said that a crucial factor in returning to profits had been removing the ‘life company costs basis’ of the Skandia platform.
'We are the largest platform in the UK and we have to be profitable. As of this month we are profitable on a run-rate basis. [Large scale job cuts with other platforms] is inevitable. There are businesses out there, and we were one of them, who have platform revenue basis at a life company cost basis. You can have a platform revenue basis with a platform cost basis but you can't have [one of each],’ he said.
'Platforms have to stand up on their own cost base, for us to run a lean wealth solutions business, every aspect of it needs to stand on its two feet and the platform has to be able to compete and be an effective proposition on its own.'
Skandia announced it was cutting 200 jobs in October last year as a result of the overlap of roles created by the merger of the business with Old Mutual Global Investors. That merger will see the Skandia brand phased out, as part of the rebranding as Old Mutual Wealth.
Skandia’s costs have come into focus with the implementation of the retail distribution review and the Financial Services Authority’s changes to platform rules. Last year a broker note from Investec Securities warned that the platform’s 0.5% margin on assets would come under threat. Skandia has unveiled an unbundled platform pricing model with headline rates higher than rivals Fidelity FundsNetwork and Cofunds, but placed stock in its ability to command higher rebates from fund groups for its users.
Feeney argued the platform’s scale meant it would continue to secure a better deal from fund managers than its rivals.
'We're the largest distributors of investment products in the UK and we want the best deal for our IFAs and their clients,’ he said. Feeney added that while some fund groups had promised a deal that would be no worse than that offered to others, the platform was demanding more. ‘If they want to work with us that's what they have to do and we're confident they will,’ he said.
The upcoming launch of Old Mutual’s Select fund range, which will be targeted at restricted advisers and run by a panel of fund managers, has drawn comparisons with St James’s Place, a parallel that has not been weakened by the group’s aim of buying stakes in adviser firms.
But Feeney denied the move was shifting Old Mutual’s focus away from the platform business.
'The platform is at the core of what we do, but it can't just be about providing a transactional platform,’ he said. ‘We want to be a leading wealth solutions provider and that definitely includes the platform, but also pensions, retirement and investment. Platform companies cannot just provide a transactional tool.'
Feeney added that the plans to buy stakes in adviser firms was not driven by a need to secure distribution, and that the deals would not involve ties to the provider. He said Old Mutual would be investing in no more than 10 firms, and taking stakes of between five and 10%.
'What influence do we get? Probably not much. With 5-10% it's very clearly not your firm. We can't run their business,’ he said. 'But with any stake we take there will be clear stipulations on what the firm spends the money on. It would be used on business development, the infrastructure of the firm. It cannot go into the hands of the financial adviser.'