After six months watching from the sidelines as Friends Provident restructured itself, Trevor Matthews is now firmly in the driving seat. In his first major interview for a pensions publication in his new role he talks to John Greenwood
Days into his new job as group chief executive of Friends Provident, Trevor Matthews has the relaxed demeanour you would expect of a man who has been on gardening leave since resigning from Standard Life back in January.
Apart from trips to his native Australia, India and Egypt, that time has mainly been spent chatting to people in the industry to see what they think of the latest company under his care.
It is fair to say that Friends Provident has taken something of a battering over the last 12 months. The resignation of former group CEO Philip Moore last year, dubbed the minus £1.6bn man after the shareholder value lost in the 11 months he was in charge, was followed by a distracting bid from private equity group JC Flowers that overshadowed a strategic review in February that saw some savage cuts made to the business.
Last month half year results showed profits down almost 90 per cent from £111m to £13m, and the company’s share price remains below half its level of 12 months ago.
Matthews sees this situation as exactly the sort of ground where his skills as a corporate rescue specialist can flourish. He compares the situation to that of his arrival at then struggling Standard Life four years ago, and at Manulife in Japan before that.
From the perspective of corporate intermediaries the comparison with Standard could barely be closer – a major pensions player weaning itself off commission business, with a good reputation for service. Friends’ shareholders and business partners will hope he proves an equally steadying hand at the tiller of his latest charge. So what is Matthews’ message to corporate intermediaries going forward?
“The big message from us is that we are very serious about this corporate pensions market. I don’t think there is room for a large number of players in this market, but we are here and we’re here to stay and take it to the next level,” he says.
“One of the issues that we face at the moment is that some of the employee benefit consultants have taken us off their panels or left us on panel but not given us any business because of the uncertainty at the corporate level and the Flowers bid. My message is that we are committed to this market,” says Matthews.
Matthews appreciates the concerns intermediaries have over placing business with providers who may not stick around, so what will it take to persuade them Friends is here to stay?
“They are worried about the AMP effect. AMP came and tried to get into the market and then the next week, bang, they were gone. Advisers need to be convinced, to cross that threshold that we are going to invest and be constant players in the market.
“We can’t predict what is going to happen in terms of corporate activity. But I think this company has got the chance to be independent for a long time,” he says. “And even if they do get bought out, they will be bought for their pensions presence,” he maintains.
“Whatever happens we are going to be very good in this marketplace so if you take it through to its logical conclusion, if there was some corporate activity, the pensions business would be a very important part of the business so I can’t see any risk at all from an employee benefit consultant’s or consulting actuary’s point of view in continuing to put clients with us. Whoever owns it, whether it is Friends or whether it gets bought out, it does not matter, it is still a strong proposition.”
So what is the first thing that Matthews does when coming into a distressed company?
“The first thing to do is see if the strategy makes sense. I was watching the development of the strategy from the outside and it seemed to make sense. Now I’m on the inside I’m very happy with the strategy,” says Matthews. “Certainly it made sense to cut premiums on regular premium pension business. I’ve done that myself at the other place.
“The next thing is the implementation and execution of the strategy. There is a lot of basic boring stuff – blocking and tackling. It’s all about people, building a structure, aligning forces and getting on with it,” he says. “And we have got the overseas operation, Friends Provident International. I think we have got a real jewel in FPI. While the UK results were not very good, although they were in line with what everybody expected here, these results were very good.
Matthews says there is no single thing that makes a company the best in the market. “I think it is a whole range of things. In this business you are only as strong as your weakest link. We have got a good history, we’ve got good service, good technology and we have to keep working at making them all better and better.”
“I am also interested in what else can we do in the workplace. We have been looking at this for some time at the other place as well, ways we can extend it to make more sense to the individual employee. Certainly I can see how Isas can be used to make more sense from a tax point of view, for when people become higher rate taxpayers. This is something I’m very keen to tackle in my early days here,” he says.
But his most pressing problem is rebuilding business volumes to replace what has fallen off with the removal of Friends’ old commission-paying model. Matthews is scathing about what he sees as ridiculous commissions on pensions, and is happy to see the back of business that costing friends money.
“Those few providers still in the commission market are losing money on that business. It is mad. I have never seen anything like it anywhere in the world. When I arrived here in the middle of 2004 like a man from Mars I could not believe my eyes,” he says.
“When I got here I went round and talked to lots of IFAs and said ‘how does this stakeholder thing work? You’ll pay £1,000 into a pension over a year with a charge of one per cent, and there is an average of £500 in the account and we make a fiver and pay you £220 commission? Does this make any sense to you. And I would ask the IFA why is he taking the commission, and he would say ‘because you pay it’.”
“And then I would go round to chief executives of life offices and say what you are doing is crazy, so why are you doing it and they would say ‘because everybody else is’,” says an incredulous Matthews.
Doomsayers say its exit from up front commission will mark the end of Friends as a force in group pensions yet Standard famously did so and now has the largest group pension business in the country. Clearly his experience in turning around Standard’s group pensions business will prove invaluable to Friends, but how did he go about it?
“It was pretty difficult. I said we had to do it, and we did it. We had some pretty difficult discussions with IFAs – some of them almost a violent, saying ‘you have ruined my business model’. Nearly all of them could see the logic in it. But while they could still get commission elsewhere they would take it,” he says.
“Others though gradually decided to change their business model and wean themselves off the drug of upfront commission, and that is encouraging. At Friends this means we are following a well worn path,” he says.
“You may not remember, but Norwich Union were the first company to cut commissions, in October 2004. Standard did in November 2004 and in December launched its Sipp product. Standard’s group personal pension sales dropped as Norwich’s did. Standard had the Sipp to take up the slack, which Norwich didn’t, and the next May Norwich panicked and put commissions back up. And they are still paying those commissions today,” he says.
Matthews came to this country as a strong advocate of wrap, but Friends knocked its proposition on the head earlier in the year. “As you know I have been a strong proponent of wrap over the years. But I’m equally convinced that it is absolutely right for Friends to pull out of the development. It was going to take a lot of time and they were another player in a market where there was not room for a lot of players,” he says.
But that does not mean Friends’ relationship with wrap is over. “We could buy one in or rent somebody else’s platform,” he says.
Matthews sees mileage in wrap for Friends through its protection business. An idea that has taken off in Australia, financial planners offer an extra chunk of cover over the funds on the wrap. The cover is for the gap between the funds on the platform and a set figure, so cover fluctuates.
“Nobody has done it here yet. So I will be going out there trying to find some wrap providers who want term assurance wrapped around their wrap,” he says.
“But personal accounts is the big one. Can we come up with a system that does make sense for all the players. I am still very worried about the fundamental flaw in the personal account system of the means testing,” says Matthews. “But I believe that the auto enrolment and personal accounts policy will be a net positive for Friends Provident. This is about making people get into pensions, and that has to be good for pensions.”
Sandy Crombie was pencilled in to leave Standard Life soon, but Matthews admits he was not prepared to stick around for the top job. “In the end it came down to taking a bird in the hand as opposed to a possible bird in the bush years down the line,” he says.
He is on record as saying he intends to return to Australia where he still has a house overlooking Sydney harbour when he is 60, in four years time. “That is the game plan,” he says. “Hopefully by that stage we will have got Friends up to the next level so it will be firing on all cylinders.”
All about Trevor Matthews
1978 Macquarie University, Sydney, Australia – MA in Actuarial Studies,
1963-1969Punchbowl Boys High School (Head Boy),
2008 Chief Executive Officer, Friends Provident, London
2004 Chief Executive, UK Financial Services Standard Life, Edinburgh
2001 President and Chief Executive Officer, Manulife Japan, Tokyo
1998 Executive Vice President Canadian Operations, Chairman Manulife Bank, Canada
1996 General Manager Personal Financial Services, National Australia Bank, Melbourne.
1989Managing Director, Legal & General Assurance Holdings Australia Limited, Sydney
Married with three sons – eldest aged (23), lives in Melbourne; two younger boys, 8 and 7 live in London.
Travel, reading, cricket and rugby. “I’ve come to the right place, considering Friends’ sponsorship of the ECB Trophy.” Drives a BMW 330D.