Martin Jennings, CEO of advisor platform Parmenion, says the digital business is at the heart of how Aberdeen Asset Management is going to address the shift of business from institutional to retail clients.
Parmenion is among a number of digital platforms that have been acquired by traditional asset managers, including BlackRock’s purchase of FutureAdvisor and Invesco’s acquisition of Jemstep. Other big asset managers have taken stakes but not full ownership of robo advisors, such as Schroders’ stake in Nutmeg. As these relationships settle, what will be the outcome, for themselves, and for the groups absorbing them?
Aberdeen acquired Parmenion in January 2016, and hired Jennings from technology vendor FNZ in April 2016 to run the business.
Since then Aberdeen has itself been acquired by Standard Life, the U.K. insurer with its own asset-management arm, for £11 billion. The merger has created a European investments giant, with a total of £670 billion ($908 billion) of assets under administration.
Parmenion contributes a mere £4 billion to that figure. “We’re tiny,” admits Jennings with a laugh. “But with the shift from defined-benefit to defined-contribution [schemes] and towards retail wealth management, there’s a need for advisory services, delivered digitally.”
Consolidation vs innovation
Jennings, who met DigFin at Aberdeen’s London office, is also part of the firm’s management board (pre-Standard Life takeover), as global head of digital. He sees his role as running Parmenion and helping it grow, as well as supporting innovation within the parent group.
“Aberdeen is good at institutional asset management, but we’re seeing now the rise of the retail investor.” That’s true not just of the U.K. market, but there is not yet a strategy for taking Parmenion abroad, given the difference in customer behavior and regulation in other countries.
“Would I love to one day walk into a Parmenion Asia office? Yes I would,” Jennings said, but growth priorities are still being sorted, and there is a lot to do in the home market first – not to mention embedding the firm into the Standard Life Aberdeen group.
That merger is an example of asset managers combining to stave off falling profits due to customers’ shift to passive investments and exchange-traded funds, rising costs and complexity of regulation, and compressing fees. It is about addressing these challenges through brute scale, rather than through innovating the business.
One of the questions facing the combined entity’s co-CEOs (Keith Skeoch of Standard Life and Martin Gilbert of Aberdeen) will be how to create synergies from their respective distribution and marketing platforms, which include three units focused on independent financial advisors: Standard Life’s insurance-related wrap; Elevate, a unit of Axa Wealth in the U.K that Standard Life has also acquired; and Parmenion.
Of these, however, only Parmenion has built proprietary technology that delivers a wholly digital package for IFAs, including investment solutions and portfolios that IFAs can design and offer to their retail customers. It doesn’t tailor bespoke portfolios for individuals – it’s not using an artificial-intelligence technology – but it does have a robo advisory tool because its clients, the IFAs, can use it when they work with their retail customers.
However, Parmenion is also just 10% of the size in AUM terms versus Standard Life’s wrap and Elevate platforms, even if Parmenion’s AUM has doubled since the deal with Aberdeen. (It is also profitable on its own.)
“Aberdeen hasn’t invested into Parmenion,” Jennings said. “It bought it. This isn’t an investment bet to learn about a new world.”
Instead, Parmenion is there to help the broader group address the growing retail market. “Retail has been non-core for institutional asset managers, but it will become a core business when it achieves scale and momentum.”
He sees his role, in part, to help the group be able to take advantage of that opportunity as the shift to retail continues.
“Since banks have moved out of the advice business, it’s left a void among the mass affluent, who don’t really understand investing,” Jennings said. “How do we support and empower that advice market? Through digital engagement.”
Parmenion isn’t a startup anymore: it’s been around for a decade. But it and other, more recent digital platforms bring fresh ideas and agile development techniques to the market. On the other hand, they lack the brand, the customer base, and the depth of experience of an institutional asset manager. Embedding a digital player inside a traditional firm is meant to serve as a bridge, for both parties.
Jennings says it will pay off, provided the group doesn’t stifle the ability of acquired teams to innovate. At the same time, Standard Life Aberdeen needs to maintain the standards and power of the institution. Jennings is at the center of this balancing act.
“The operating model we’ve set [at Parmenion] is the right one, and now our challenge is governance,” he said. A technology company such as Parmenion can’t spend its time on the sort of regulatory and internal reporting common to a licensed financial institution. It maintains its own budget, its own compliance system, and its own product design.
At the same time, he says Parmenion will need to adopt the parent’s governance as it achieves scale. “We have faster decision-making today, but this will get harder as we grow,” Jennings said.
He doesn’t see Aberdeen taking Parmenion technology and custody offering and applying it to Aberdeen’s fund products. Nor does he see Parmenion launching Aberdeen products on its platform. Customers haven’t signed up for that. Nor does he see a benefit to ditching the Parmenion name, because he isn’t in the institutional asset-management business.
Instead, he says the synergy is to be found elsewhere. Capital is the most obvious benefit to Parmenion. It is also benefiting from the human resources of a big, established company, such as training and career-path management, as well as in fields such as audit and governance.
In turn, the group is experimenting with co-developing new technology, in particular cyber security, where some capabilities are now being tested. Parmenion is giving Aberdeen a sense of how agile development actually works, with regular – fortnightly – product release cycles and giving people the freedom to run them. This is being done in a sandbox-like environment, as the heavily regulated group tries to adopt the nimbleness of a tech company.
The biggest unknowns Jennings sees, when evaluating this marriage of fintech and traditional asset management, is who will have the best understanding of customers and the ability to fulfill their demand with the right product, as opposed to the traditional business of pushing a fund.
To that end, he says expansion into Asia will come when Aberdeen’s local salespeople find value in having Parmenion technology. Jennings visits the region regularly to educate everyone in the group about the platform. And although he’s keeping an eye on the dozens of robo players in the U.K., he sees more profound competition from another direction.
“What happens when Tencent, Ant Financial and Ping An come here?” he wonders. “Do they want to have a regulated business in Europe?”