Has the word ‘wealth’ been hijacked by financial planning firms, and is it losing its aspirational edge?
Standard Life Wealth chief executive Richard Charnock and chief investment officer John Hair certainly think so.
The pair led a rebrand of the business earlier this week in a move that saw the firm, which has £6.5 billion in assets under management (AUM), renamed Aberdeen Standard Capital (ASC).
Although this exercise was always on the agenda, following the merger of Standard Life and Aberdeen Asset Management in 2017, Charnock says it was not the only reason for wanting to rethink the private client business’s identity.
‘It was partly because of the rebrand, but we need a label and a descriptor that better sums up what we do. I think the word "wealth" has moved on, and for a lot of people it describes financial planning, and we only offer discretionary investment management. We needed a brand that was more contemporary and better reflects what we do,’ Charnock (pictured below) says.
‘I also think the word "wealth" is pejorative to some clients, and they don’t like it [finding it crass]. It’s served us well, but we are in a new era, so a new label is appropriate.’
The company also wanted to more closely align itself with parent group Standard Life Aberdeen’s (SLA) investment management division, Aberdeen Standard Investments (ASI), to underline the fact that the wealth business has a £557 billion institutional powerhouse sitting behind it.
‘The brand emphasises the connection between the businesses, showing we have got a clear link to all of the institutional expertise of a global asset manager that runs over £500 billion around the world,’ Charnock says.
‘That is a differentiator, and we have unfettered access to it. The brand for us and our parent needs to be aligned.’
The rebrand caps a busy period for the business. The company has just installed a new IT system to ensure it has a strong platform supporting it. It has introduced Focus Solutions’ wealth hub to sit alongside the Platform Securities back office system it runs.
Charnock describes it as a significant upgrade, offering clients a degree of ‘self-service’ – for example, being able to change their own admin details – while also introducing a number of new high-tech features that make engagement more interactive.
‘It enables co-browsing, so the wealth manager can take over a client’s desktop and take them through a presentation or show them what they need to be looking at,’ he says.
‘New clients are already on the system, and we’ll roll it out to the rest over the next month. Doing it at the same time as the rebrand has put a lot of pressure on, but it’s a good time to do it – we’re upgrading what we do.’
With the IT platform and overhauled branding now in place, one of the next things on the agenda is tidying up some of the remaining strands from the merger. One of the lesser-known aspects of the deal was Standard Life’s acquisition of Aberdeen’s Jersey-based private client business.
Standard Life already had a London-based business providing custodianship in Jersey, Standard Life Wealth International, whereas Aberdeen has an office on the ground in Jersey’s St Helier. The two offshore divisions are currently being run alongside each other, but will be merged into a single entity, Aberdeen Standard Capital International, later this year.
‘[Aberdeen’s Jersey division] is a successful, profitable business and not only serves private clients; it also runs a charity. This is brilliant – we can merge them together, and it’s a big positive having an office there. It’s a very competitive environment – you need a network of contacts with the inflows coming from the trust business,’ Charnock says.
Hair emphasises that the rebranded wealth company, linked more closely to ASI, will be a strong selling point to the Jersey trust gatekeepers, who value an institutional approach. He believes that this is more important than ever, given the late-cycle environment.
He argues that returns from a typical balanced portfolio are likely to be lower over the next 10 years than they have been over the last decade. This plays to the strength of ASC, he says, as investment managers that can access a broader range of asset classes to both improve diversification and better generate alpha will be at a distinct advantage.
Hair points out that ASC can draw on ASI’s financial clout to invest directly in more esoteric asset classes, such as private markets, while at the same time having greater oversight of the underlying exposure than would be the case if it was held through a third-party fund.
Hair says: ‘It’s important, in terms of the changing investment landscape. If you look at returns going forward, returns from traditional capital are going to be lower than in the last 10 years. You need to be able to access other asset classes, for example, we can access private market portfolios by drawing on the strength of ASI.
‘Charities and the next generation of clients have longer-term investments, and you need to be able to do it at a lower cost. We can do it internally, so there is no double charging, and we have full access, so it’s good for risk management. We can take all of the client’s preferences into account.’
Reflecting this conviction that we are moving into a new and more challenging investment environment, ASC is in the process of bringing a new strategy to market.
The firm’s enhanced diversification proposition looks to blend ASI’s global stock-picking capabilities with an equity-like return-seeking volatility managed overlay that can be increased or decreased, depending on the client’s attitude to risk.
The diversifying overlay is invested in a broader range of asset classes than a traditional balanced fund, so it incorporates exposures such as private markets and derivatives, alongside the likes of bonds, infrastructure and commercial property.
‘We soft-launched in July and we are now marketing it. You can change the level of equity – for example, having 70% in global equities with 30% in equity return-seeking volatility strategy, which will be very low correlation,’ Charnock explains.
‘In a bull market, it will capture some of the upside, but not all of it. It’s about the compounding. We are leveraging our parent again.’
Given the stock market fluctuations seen in the second half of the year, the enhanced diversification strategy certainly had a baptism of fire. But, pleasingly for ASC and its clients, it performed very strongly, with the 70/30 version delivering a positive return of 0.3% in the fourth quarter, when the FTSE 100 was down by 10.4%.
While many, rightly or wrongly, will automatically liken any volatility managed product or service from the firm with ASI’s foundering Global Absolute Return Strategies (Gars) range, Hair insists this is wrong.
‘Enhanced diversification is very different to Gars. Gars is trying to reduce risk. We are saying that we’re taking risk, just in a manner that is not correlated. There is a huge distinction between the two and we’d expect them to have different return profiles,’ he says.
It is, of course, early days for the fledgling strategy, but ASC will be hoping that the way it navigated the fourth quarter will be a portent for things to come.