Mike, you have been managing director of Axa Wealth International for more than three years now. What has been the highlight of those three years?
I guess successfully steering the company through the Retail Distribution Review, the biggest regulatory change the UK has ever seen, would have to make the list. As a business, we were ahead of some of our competitors so we've been able to concentrate on developing innovative new products that meet new adviser and consumer needs.
From a slightly more personal perspective, the 20th anniversary of the company in July 2012 was a highlight and it was good to celebrate this landmark with friends and colleagues.
We have so many talented and hard-working people in our business that it is key that they have an aspirational strategy to work towards, so we're now working on a new expansion strategy for the business over the next five to 10 years.
In May, Axa reported a successful first quarter for the business, with an increase in offshore assets under management. How did Axa Wealth International fare in the second quarter?
Having enjoyed a significant share of the international market for many years, we have continued to see an increase in sales of portfolio bonds in difficult market conditions over the first half of the year.
We have also seen total assets for Axa Wealth International steadily increasing in the first half of this year and the business continues to demonstrate positive signs of growth.
Last month, the Association of British Insurers released figures which revealed a £100m fall in the sales of single premium offshore bonds in the final quarter of last year. Why do you think this happened and is it a long-term trend?
The market is still adjusting to the RDR, so perhaps it's too soon to make judgements. However, it's fair to say that the RDR has had a more profound impact than anyone could have anticipated.
Any disruption to key distribution channels was bound to have a profound impact on sales volumes and a number of the retail banks have struggled to adapt their business models for the post-RDR world.
So while some have made the leap, at RDR + 18 months, it's now possible some will not. The £100m 'shortfall' can largely be explained by this market dynamic alone. If it persists, other channels might be expected to take up the slack.
There has been a suggestion that the single premium market may be about to pick up again due to rising M&A activity. Is this something you see on the horizon?
I'm not sure there is a direct connection between M&A activity and a rise in single premium business as you suggest, but if a rise in M&A activity is a byproduct of increased market confidence, then yes, this may well be the case.
The sector has traditionally reflected investment market sentiment, broadly mirroring the peaks and troughs often with some lag, rather than bucking the underlying trend. If investor confidence continues to return, then the UK offshore sector might expect to be a beneficiary.
In the July issue of IA, Simon Willoughby, head of proposition at Axa Wealth, suggested in order to combat a more widespread dip in assets coming into the offshore bond market, the sector needs to target those who are 'young and income rich'. Is this a view you share?
As my head of proposition, you'd hardly expect me to disagree with him would you? Simon is actually spot on here. In the post-RDR world we see a clear need to target exactly the same type of clients we currently have, but to attract them at a much younger age.
To do this we need to recognise that their lifestyle and financial circumstances are different.
As a result, we need to be more flexible regarding how and when they want to give us money and accept that sometimes they will want to take money out as well.
Going forward, we believe that we need to behave less like a life company and more like a platform.
After you launched the Axa Delegation Bond in October last year there were some in the industry who said the product "did not work". Clearly the fact the product is still being marketed successfully would seem to prove this view wrong. Is there anything you'd like to say on the matter?
Delegation was a major product development for us in 2013 and involved the dedicated support of many people across not only Axa Wealth International, but Axa Wealth in the UK as well as a key group of 'launch' discretionary fund managers.
It also involved much painstaking research and expenditure with lawyers, tax experts and a QC in bringing the product to market.
So yes it was a little irksome that some chose to question the integrity of the product including its tax status.
However, as part of the regular discussions that take place between Axa Wealth and HM Revenue & Customs, the Revenue were happy to confirm that our interpretation of the Sections 515 – 526 ITTOIA 2005 was indeed correct, and that the control processes we have in place to vet the suitability of discretionary fund managers (DFMs) to run Delegation are robust. Additionally, the product has already started winning awards for innovation and with it, wider endorsement from the market.
How are sales of the product going? With what types of client is it proving popular?
Sales of Delegation are on track with what we projected pre-launch for a relatively new product concept aimed at a market segment only accessible to DFMs, and through them their supporting advisers.
Delegation is not a mass market product and neither is it a product for every DFM, but we believe it does have an important role to play for a small number of high-value clients seeking the benefits of greater asset diversity and tax control without wanting to be 'hands-on' in the asset selection process.
Also last year, Axa began to refocus its offshore sales team, trimming a number of roles. Can you talk us through what you did and why?
All is not what it seems here. One of the more obvious impacts of RDR for product providers has been the realisation that it's neither desirable nor cost-effective to cover all potential distributors, and that a more targeted approach is required. This is reflected in the number of front line sales staff now required.
The other factor, and one quite relevant to Axa, is that the old 'onshore' and 'offshore' distinctions have become increasingly redundant.
Axa Wealth promotes a set of tax-advantaged specialist products, some of which are manufactured in the UK, some in the Isle of Man and others in Dublin.
The sales changes over the past 12 months reflect the move by Axa Wealth to promote its on- and offshore tax-advantaged products through a common sales team to reflect this more agnostic approach to where the products are actually manufactured. Advisory firms dont make the on/offshore distinction, so neither does Axa Wealth.
Following the Budget in April, there has been much discussion about how the asset management industry may step up to meet the demands of investors when they reach retirement. How do you see the offshore bond industry fitting in to this?
The asset management industry may well be a beneficiary of the annuity changes due to be implemented in 2015, but perhaps this is more likely to be as the investment engine that powers alternative pension solutions rather than providing the tax-efficient wrappers.
In truth, the current attraction of offshore bonds as a tax-efficient income drawdown vehicle in retirement will be, to some extent, diminished in the new pension environment that won't force clients to take annuities.
However, offshore bonds will still have a tax-efficient role to play for clients wanting greater investment liquidity than even the new model pensions.
