How Aegon’s BlackRock buy could change workplace distribution: Ian McKenna

Ian-McKenna-in-2013-700.jpgAdding BlackRock’s DC components to its existing offering gives Aegon the potential to offer EBCs and corporate IFAs considerably more says F&TRC director Ian McKenna

Aegon’s acquisition of BlackRock’s pension administration platform and the related existing business has the hallmarks of a deal that could be worth far more than the sum of its parts. Not only does it bring with it a significant number of major workplace benefits customers, many of whom are high earners, but it also provides Aegon with a powerful back end to combine with its Retiready member-facing service.

Probably most important of all it gives Aegon a capacity to provide key components to larger benefits distributors, at a time when assembling their own integrated propositions offers a level of benefits to consumers that are hard, if not impossible, to achieve in the old segregated manufacture and distribution model.

Life offices built their dominance by being able to create and maintain vast administration factories. Technology has increasingly commoditised such capability – what used to take an army of actuaries and administrators days and weeks can be delivered by software in seconds. Maintaining and evolving such services is however a deep pockets game. Bringing together scaling and maintaining the components is increasingly where value is grown.

Aegon CEO Adrian Grace clearly recognises one of the most important rules of the digital world – if evolution means your business is going to be disturbed, make sure it is you doing the disturbance.

Over a period of several years Aegon took the hard road of building its own capability, both in its retail platform and its consumer-facing service. It has far greater independence than many of its peers, because it has its own technology combined with third party components over which it can exert far more control.  This makes Aegon far less dependent on any external software suppliers who have their own agenda.

An increasing number of large corporate advice firms are looking at the way they have historically handed over large amounts of long-term value to life offices and questioning if their business model can be better constructed. The answer is invariably yes. With the right approach firms can deliver far better customer value, boost their own profits and reduce their already limited regulatory risks.

Up to now such proposition assembly operations were really only offered by US organisations to firms who could put together around $1 billion in assets. Many such options are now available to advisers.  Based on recent projects I have been involved with this entry level seems to have fallen so that it is a viable option for advisers with as little as £250 million assets under advice. Equally in the past services have typically been designed to support the individual client platform market, however this seems now to be extending to the corporate arena.

Aon’s Bigblue Touch contract based arrangement is a perfect example of how this can be achieved. Notably key components of this are powered by the BlackRock business Aegon has acquired. Taking a similar approach Aegon is ideally placed to help firms with the right scale assemble new offerings.

This deal gets Aegon into the world of supplying services to adviser firms, on commercial terms – not just asking them to resell Aegon products. This gives them a significant commercial advantage over their traditional peers, enabling entirely new types of partnerships with advice firms. The traditional separated value chain is already being disturbed, but this deal could significantly accelerate such change. This could really shake up the workplace pensions landscape.

There are still a few key elements I believe Aegon need to add before I believe they will have the optimal solution, but this deal puts them in very strong position to grow in all the key areas of the corporate pensions market.