Working for a Shrinking Asset Manager Is No Fun

(Bloomberg Opinion) -- Webster’s dictionary defines bipolarity as “characterized by two directly opposing opinions, natures, etc.” Three years after the mega-merger that created Standard Life Aberdeen Plc, it’s still trying to cure itself of just such an affliction. New chief executive officer, Stephen Bird, needs to get the firm pulling in a common direction.

Since taking over at the start of September, Bird worked quickly to demarcate the U.K. asset management company’s businesses into four areas — global asset management, fund adviser platforms, strategic partnerships, and retail savings and wealth. Each division has its own leadership and, importantly, growth targets. With the relentless industrywide pressure on fees and income showing no signs of abating, a shrinking asset manager can rapidly become an unviable one.

Next up on Bird’s to-do list: sorting out the marketing. The company currently has six brands, each with its own website. That’s arguably five brands too many, diluting the prestige that should flow from almost two centuries as a steward of other people’s money. The confusing stable includes both the Standard Life Aberdeen and Aberdeen Standard Investments monikers, as well as the utterly unmemorable 1825 trademark referencing the firm’s year of establishment. The more than 600 individual funds available could also benefit from judicious pruning.

Although the company was a frontrunner in identifying the importance of scale, it’s fumbled its execution of the merger. Combining two cultures was never going to be easy, but it was made harder by the initial mistake of installing co-chief executive officers, Standard Life’s Keith Skeoch and Aberdeen’s Martin Gilbert. That produced what one insider called a “Noah’s Ark” approach to decision making that tried to keep both camps happy instead of following business logic.

That blurred vision and hurt morale. A survey just after the merger showed only about half of the staff felt positive about going to work, with a fifth feeling negative. Returns for investors suffered. In 2018, about half of funds under management lagged their relevant benchmarks measured over three years. In 2019, 40% of them still underperformed.

Customers have pulled money out of the firm every year since 2016, with assets dropping to 512 billion pounds ($695 billion) by the middle of this year, well short of the $1 trillion club the merger was designed to qualify for.

Chairman Douglas Flint cleaned house after arriving in early 2019. Gilbert quickly relinquished his seat, and in June this year Skeoch announced his departure.

Bird, a veteran of more than two decades at Citigroup Inc., seems to have the right background to succeed. A Scot, he built the U.S. bank’s wealth business in Asia and headed its consumer banking unit. Since he joined Standard Life Aberdeen, investors have driven the share price up by more than 25%, outpacing gains at rival firms including Schroders Plc, Amundi SA and DWS Group GmbH.

His experience will be valuable. With individuals taking more responsibility for building their own old-age savings, fund management firms are in a race to build the best mousetrap to win that business by selling products either directly to retail clients or via their financial advisers.

But it’s an increasingly crowded marketplace. Schroders displaced Standard Life as the U.K.’s biggest standalone investment company by assets earlier this year, and it’s teamed up with Lloyds Banking Group Plc to target well-heeled Brits. And U.S. behemoth Vanguard Group Inc. is moving Brent Beardsley, its head of strategy, to London next year to head its direct-to-consumer business as it scents opportunity in the growing U.K. pensions market.

More than half of the U.K.’s 27,000 financial advisers use Standard Life’s Wrap or Elevate investment platforms to service their clients, giving it leverage in that market. Aberdeen Standard Capital manages about 8 billion pounds directly for affluent customers and the company’s 1825 service offers investment advice. Now it needs to target the mass market through better branding and marketing as well as improved technology to make it easier for individuals to keep track of investments and to entice them with new products.

An expansion in the fast-growing passive products market is overdue. Skeoch had zero interest in growing the low-margin business that relies so much on economies of scale. But with demand for index trackers heading in one direction, Bird has acknowledged the firm needs to offer a full suite of services. Exchange-traded funds, including actively managed ETFs, are liquid, transparent and cost-effective wrappers to deliver new investment themes to customers, Bird says.

Both corporate morale and investment performance were improving before Bird took charge. Almost three-quarters of employees said in July they were proud to work for the company, with only 7% saying they felt negative. The portfolio managers have got their mojo back. At the half-year point, two-thirds of funds managed were beating their indexes.

But at about 6.2 billion pounds, Standard Life Aberdeen’s current market capitalization is half what it was at the time of the merger. Bird has a long road ahead if he’s to restore all of that shareholder value.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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