Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

The end of Standard Life as we know it: all you need to know

All you need to know about Standard Life Aberdeen's decision to sell its insurance arm to Phoenix in a £3.2 billion deal, as well as all the highlights from its 2017 financial results.

The end of (Standard) life as we know it

When Standard Life merged with Aberdeen last year everyone thought the 'life' part of the business was running on borrowed time. 

New Model Adviser® even reported an analyst note from RBC Capital last year which suggested a deal to get rid of the business could be on the cards. 

However not many expected the company to shed the legacy life business so quickly, with a £3.2 billion deal to sell it to Phoenix announced this morning. 

So what has happened? We have collected everything you need to know about the deal in one place.

It may have slipped your notice but Standard Life Aberdeen also announced financial results for 2017 this morning. We have also collected all the information you need to know about the first financial results for the merged company. 

The end of (Standard) life as we know it

When Standard Life merged with Aberdeen last year everyone thought the 'life' part of the business was running on borrowed time. 

New Model Adviser® even reported an analyst note from RBC Capital last year which suggested a deal to get rid of the business could be on the cards. 

However not many expected the company to shed the legacy life business so quickly, with a £3.2 billion deal to sell it to Phoenix announced this morning. 

So what has happened? We have collected everything you need to know about the deal in one place.

It may have slipped your notice but Standard Life Aberdeen also announced financial results for 2017 this morning. We have also collected all the information you need to know about the first financial results for the merged company. 

What has actually been sold?

Standard Life Aberdeen has sold its insurance arm to Phoenix Group in a £3.2 billion deal. 

However, this does not include its three platforms (Standard Life Wrap, Elevate and Parmenion), nor advice arm 1825. 

The sale involves Standard Life Assurance Limited, while the retail platforms and advice business stay with Standard Life Aberdeen. 

'The businesses transferring to Phoenix include the UK mature retail and spread/risk books, and the Europe, UK retail and workplace businesses,' the company said. 

According to Phoenix this includes with-profits funds, as well as workplace assets. Under the terms of the deal Phoenix will manage workplace assets on behalf of Standard Life Aberdeen.  

How much is Standard Life Aberdeen being paid?

The deal in total is worth £3.2 billion, Phoenix paying £2 billion in cash with a further £312 million dividend payment due from the insurance company itself before it is sold.

The remaining value of the deal consists of Standard Life Aberdeen taking a 20% stake in Phoenix, which it must hold for a year before deciding whether to sell or stick with the investment for the long term.

Standard Life Aberdeen will continue to serve as the asset manager for the insurance business acquired by Phoenix, as well as the assets it already manages for Phoenix, which now total £158 billion.

What is the motivation behind the deal?

The company stated the reason for the sale was a desire to focus on its retail platforms and asset management arm, Aberdeen Standard Investments.

Phoenix Group's forte is in administering long-term savings, and Standard Life Aberdeen has said the partnership enables it to 'realise attractive value for the disposed businesses, while continuing to benefit from access to related assets and flows'.

Standard Life Aberdeen chair Gerry Grimstone also explained: 'This transaction completes our transformation to a capital light investment business, a process started in 2010 with the sale of Standard Life Bank, continuing with the sale of our Canadian business and the merger last year between Standard Life and Aberdeen Asset Management.' 

The loss of a deal to manage assets on behalf of Scottish Widows may also have played a role...

Is Standard Life Aberdeen reclaiming the Swip mandate? 

Scottish Widows last week decided to pull a £109 billion mandate for managing its funds from Standard Life Aberdeen.

Aberdeen Asset Management had run the funds since 2013, when it acquired Scottish Widows Investment Partnership (Swip), but last year's merger created problems since Standard Life is a direct competitor for Scottish Widows. 

Scottish Widows chief executive Antonio Lorenzo indicated Standard Life Aberdeen could re-enter this contest though, if it sorts out its competition issue.

Now it has sold the insurance arm, could Standard Life Aberdeen win back those Swip funds? We'll have to wait and see. 

How have investors reacted? 

Standard Life Aberdeen was the leading gainer among the FTSE 100 as markets opened this morning, rising around 4% as markets opened. 

At the time of writing, its share price is up around 1.7%. 

Hargreaves Lansdown equity analyst Nicholas Hyett said: 'The legacy insurance business was always a bit of an odd fit with the new look Standard Life Aberdeen. Selling it off to Phoenix provides a cash injection and frees up capital while the 20% equity stake should keep the assets under Standard Life Aberdeen’s management, potentially adding more from elsewhere in the Phoenix portfolio. Mutual backscratching is much in evidence, but it’s a sensible deal.

'Finding a new source of assets is critical, since the bits of Standard Life Aberdeen that will remain are not having the best of times. Assets continue to walk out the door, with a net loss equivalent to 4.8% of starting assets this year, and Lloyds is looking at withdrawing the £109 billion Scottish Widows portfolio within a year.

'Fortunately investment performance is holding up and the adviser platforms continue to deliver steady growth in assets. That should give the group the tools to get asset flows moving back in the right direction. It’s now just a question of turning potential into reality.' 

Gars outflow

Oh dear!

Standard Life Aberdeen's Gars strategy was hit with a £10.7 billion net outflow in 2017. 

This contributed to an overall net outflow of £22.1 billion for the firm's investment engine, Aberdeen Standard Investments.  

This continues the run of outflows from its key Gars multi-asset strategy, which suffered a £4.3 billion outflow in 2016.  

'Investment performance sentiment resulted in a slowdown in gross flows and increased rate of redemptions,' the firm said in its update

Seeing the defined benefits

Defined benefit pension transfers helped Standard Life Aberdeen achieve a 66% year on year rise in platform inflows last year.  

The company recorded net inflows of £7 billion across its three platforms over 2017, as assets under administration rose to £54 billion. 

Net inflows onto the Standard Life Wrap and Elevate platforms were 'boosted by transfers from defined benefit to defined contribution pension schemes, which helped the UK retail channel achieve a 73% increase in net flows to £6.4 billion (£3.7 billion in 2016),' the company said.

Goodbye Grimstone

Alongside all that massive news about mergers, acquisitions and Gars disappointment, we also learned that Standard Life Aberdeen chairman Gerry Grimstone will step down from his position at the company in 2019.

The Standard Life veteran Grimstone has been with Standard Life for 11 years and was widely regarded as being instrumental to last year’s merger with Aberdeen.

A hunt for his successor will begin soon. 

Revving up the robo

Seemingly like everyone else, Standard Life Aberdeen is developing a robo-advice proposition

In its financial statements for 2017 the company said it was considering automated propositions as part a plan to better integrate its asset management business. 

‘Our work to improve the experience we offer our pensions and savings customers includes integrating our workplace solutions with our clients' existing technology, and developing our capability in offering automated advice based on customer data, or “robo-advice”,’ the company stated.  

 

Key performance indicators

Despite strong performance in its retail business from the pension transfer boost, total pre-tax profits for the group were down 1.4% from £1.05 billion in 2016 to £1.04 billion last year.

However, in many other respects the business looks very healthy.

The company recorded net inflows of £7 billion across its three platforms over 2017, as assets under administration rose to £54 billion. 

Parmenion’s net flows made up £1.3 billion of the combined inflows, with assets under management of £4.4 billion in 2017.

Meanwhile, assets under advice at restricted advice firm 1825 were £3.5 billion by the end of last year, Standard Life Aberdeen added. 

Comment & analysis
Investment

Asset managers: 'There is going to be a distribution revolution'

2 Comments Play Asset managers: 'There is going to be a distribution revolution'

In footage not used in our original CEO tapes videos, five CEOs discuss how distribution will change in the future. Will 'distribution' be revolutionised by technology the same way that Spotify changed music or the Kindle changed publishing?

Twitter