Life insurer Legal & General (LGEN) has put its faith in the rise of fund investing by acquiring the 75% it didn't already own of investment platform Cofunds. The market applauded the £131 million acquisition, sending shares in Legal & General up 1.7% to 170.5p.
Cofunds is used by both retail and institutional clients such as stockbrokers, wealth managers, private banks and pension providers. It doesn't offer financial advice or its own funds. Instead, Cofunds provides the technology platform from which to buy and sell third party funds, together with services such as payment processing, valuations and access to fund manager reports.
Legal & General's acquisition is strategically interesting. New rules came into power at the start of 2013 that ban financial advisers from receiving commission for recommending investment products. Instead, they earn money through charging investors a fee for financial advice. This radical change to the investment industry is expected to encourage more retail investors to take control of their financial planning, be it through direct equity or fund purchases.
Retail investors can't buy funds directly through Cofunds, but they can get access via a financial adviser. It is the after-purchase services that could really appeal to more hands-on investors by using the internet to monitor their portfolio.
Perhaps even more appealing to the growing numbers of more-confident retail investors is Cofunds' partnerships. For example, a retail investor can go through Moneysupermarket.com (MONY) and buy and sell funds through its white label version of Cofunds.
Legal & General says digital is a key part of its growth strategy and it is clearly banking on greater take-up of fund investments. It cites a forecast by Fundscape Platform Report in February that assets under administration in the investment platform market could double by 2017.
Cofunds has £50 billion of assets under administration and has built up a large business through the financial backing of some of the country's largest investment companies. Legal & General was the biggest backer at 25% holding. It is now buying the following stakes: 24% from International Financial Data Services; 20% from Threadneedle Investments; 18% from Newhouse Capital Partners; 10% from Jupiter (JUP); and 3% from Prudential (PRU).
The acquisition is expected to boost Legal & General's earnings by the end of 2014. The transaction is mooted for completion by June this year.
By Dan Coatsworth and Mark Dunne