15 Feb 2021
On 10 February, news broke that James Hay (JH) had agreed to buyNucleus for £145m. The deal will lead to combined assets of over £45bn (as at Q320) – on a par with Transact – and is expected to conclude in Q221.
The sale came because Sanlam wanted to sell its 52.2% stake in Nucleus after setting up its own platform with Hubwise in 2019. Other parties were interested but James Hay was successful, though the offer looks more like a last roll of the dice from an ailing platform than a long-planned intention.
What’s the big deal?
JH is one of an ever-dwindling number to run on proprietary software and Nucleus runs on Bravura. The announcement confirmed both will eventually be moved to FNZ technology. While long-suffering James Hay users will be delighted with an upgrade in technology, Nucleus advisers are likely to need more convincing.
It is a huge step away from Nucleus’s ethos that resonates deeply with its advisers. This ethos has resulted in Nucleus moving away from outsourcing everything to bringing everything in-house except for the core Bravura technology. But when it finally moves to FNZ, it will join the queue along with Quilter, Standard Life and Aviva among others.
JH’s platform was effectively built on the cheap. It started life as a Sipp provider before deciding that it wanted to be a fully fledged wrap platform. But rather than shelling out for full wrap technology, it bolted bits of tech onto its original framework. The proposition was not as seamless as they would have liked and relied substantially on workarounds.
Recent years have seen meagre investment in JH’s platform to bring it up to speed, so it’s fallen behind its peers. Parts of it look and feel a long way off the competition. Salespeople have understandably had a tough time trying to sell it to advisers and new business has slumped. Acquiring Nucleus was therefore both a lifeline to new technology and a rapid expansion of assets and intermediary clients.
One of the other more distinct differences is the charge and proposition structure. Nucleus has a simple tiered charging structure for accessing all it has to offer, but JH operates on a ‘pay for what you use’ basis, with advisers turning off and on elements of the wrap to suit their clients. Though some advisers like this pricing style, the reality is that this was the only option because of the modular, piecemeal structure to the JY platform. JH’s pricing will eventually be replaced with something more in line with Nucleus’s charges.
Finally, there’s the issue of service. Nucleus has worked hard to build a strong and loyal adviser base and the challenge is maintaining this in future. Only as recently as November, it acquired Genpact (which provides its administrative services) with a view to increasing ‘control over its processes, service offering and product development’, but this deal could see them lose some of that closeness.
Conversely, some JH users will hope with the new deal comes a substantial improvement to service, so the larger risk lies in keeping Nucleus’s supporters. Clear and frequent communication will be key.
Further along the line
The migration of assets from Bravura (Nucleus) and proprietary (JH) software onto FNZ should not be underestimated — it is a mammoth undertaking. The fallout from Aviva and Aegon (though GBST, not FNZ) left deep and often irreparable damage to reputation, with many advisers losing patience and moving elsewhere.
Migrating Nucleus assets will be easier (yet still a huge task) but there will be significant challenges with JH’s assets, particularly legacy Sipp business. Complex, older business = harder to migrate and more manual intervention.
The prospect of two re-platforming projects from two different technologies onto one will be too much for some advisers, and they may look for new homes for their clients (especially those with business on both). Advisers are understandably reticent to place new business on wraps with re-platforming plans on the horizon, so new flows will be affected too (as evidenced most recently by Quilter).
However, Quilter also demonstrated that the migration process can go smoothly if communication between all parties is clear, and the proverbial kitchen sink is thrown at readiness – both Nucleus and JH will do well to learn from its experience.
The best of both worlds
Despite the challenges that lie ahead there are reasons to be cheerful. There are talented and skilled staff at both James Hay and Nucleus (though sadly some will inevitably be lost in the process, and Nucleus has already confirmed there will be job losses).
Harnessing the strengths of Nucleus’s data-science skills with James Hay’s pension expertise could lead to some market-leading innovations. James Hay salespeople will be delighted to sell a platform that can compete with more contemporary wraps.
Advisers will be hoping that the new combined platform will be one that is the best of both, and this is certainly possible, but not without a massive and prolonged effort. In the meantime, they shouldn’t panic. It will be interesting to see how many see this as a positive and continue to place new business with the platforms, as market share for both has shrunk in recent quarters. We’re a long way off yet, but the future could be bright, it could be orange… hopefully it won’t be black and blue.