Independent financial advisers (IFAs) could assume up to 25 billion pounds worth of the value of the UK life sector within the next decade or two, according to a new business designed to challenge the existing structure of the financial services sector.
Recently formed Nucleus Financial Group which has designs on a market capitalisation similar to that of Standard Life told Reuters that the IFA sector could take control of that amount of the retail sector currently being administered by life offices.
David Ferguson, chief executive of the new company formed to deliver an IFA led wrap proposition and shift value away from the life industry to the IFA sector said it was completely irrational that insurers commanded 100 times the value of the intermediary industry.
The UK life sector has an estimated value of 100 billion pounds, while the IFA sector is valued at just 1 billion.
We aim to expose the life industry as a complete commodity just a basket of assets, said Ferguson.
The UK life sector is grossly over valued, because it's based on a series of assumptions that will never be borne out in practice.
Over the next 10 or 20 years, 20 to 25 billion pounds could fall out of its value: I think it's over valued by that much.
Nucleus will provide access to the universe of funds and tax wrappers, as well as technical, fiscal and legal expertise, and aims to give IFAs greater alignment to the interests of their clients, rather than those of product providers.
We're moving away from a sales based approach to a more service based approach, Ferguson said.
We feel this (Nucleus) could become the biggest player in the financial service sector, with a size similar to that of Standard Life in the medium to long term; the aspiration is very big.
Standard has a market cap of some 5.54 billion pounds and spent 80 million pounds developing its wrap proposition.
Nucleus' offering will be introduced at a fraction of that cost. Australian firm Bravura Solutions is developing its wrap technology to provide straight through processing, wholesale and whole of market investment fund pricing and portfolio management tools at a substantially lower cost than available elsewhere in the UK retail wrap market.
We'll be stripping out layers of cost, said Ferguson. It's a bit like when easyJet launched people wanted to get from A to B with a reasonable chance of being on time and they didn't want to pay 300 pounds for breakfast. Nucleus works on the same principle.
A consortium of seven founding IFA firms has taken a 7 percent stake in Nucleus, the brainchild of Ferguson and Philip Martin, directors of financial services consultancy Abacus Group.
The Edinburgh based business is currently in talks with 110 other interested parties throughout the UK, and IFAs will hold a total 51 percent of the shareholding.
Two hundred or so firms represent the bulk of the IFA market, said Ferguson. Most IFAs feel constrained by providers, but we've (still) been really surprised by the strength of feeling.
The seven founding members stretch from Aberdeen to Southampton, and are: Central Investment Services of Aberdeen, Scott Lang of Manchester, Avidus Wealth of Bolton, Hardman Kay of Leeds, Southampton based Asset Management IFA and two London firms Howard & Co and Helm Godfrey.
Bruce Wilson, managing director of Helm Godfrey, said Nucleus represented a coming of age for the UK IFA.
The basic business challenge for forward looking IFAs is to gain greater control over the whole business process, so as to improve the quality of the client experience and reduce dependency on traditional life providers, he said.
The big danger for quality IFAs is that wrap propositions from life companies or elsewhere will perpetuate that dependency. Nucleus is different.
The group's founders and financial backer, South African insurance firm Sanlam which owns Merchant Investors and has a stake in actuarial consultancy Punter Southall in the UK hold the remaining 49 percent.
Sanlam, the second largest insurer in South Africa behind Old Mutual, has invested several million pounds in the venture.
Ferguson added that it was crucial that Nucleus which was established on June 28 and expects to attain regulatory approval by December had secured a non UK backer that was not part of the legacy problem.