Alexander Forbes: Holding its nose at retail clients, but OK
Focus on institutional pension funds means its ability to cross-sell to high-margin retail clients is severely limited
The decision by Alexander Forbes to offload its insurance business, which would have allowed it to expand in the retail space, did not seem to surprise the market.
The company’s old plan, dubbed Ambition 2022, focused on growing Alexander Forbes’s share of the retail market – which analysts thought was a sound growth strategy. Yet after announcing it was changing course, the pension fund administrator’s share price rose 2% on Tuesday, continuing with another 2% increase on Wednesday.
Although these are small moves they are important for Alexander Forbes, whose stock shed about 30% of its value in the past 12 months. It perhaps indicates that the market wanted Alexander Forbes to stick to servicing institutional clients – what it has done successfully for decades.
Many analysts think the focus on areas where Alexander Forbes has economies of scale – which happen also to be capital-light businesses – makes sense. Insurance is after all a competitive space.
However, institutional investors on whom Alexander Forbes wants to focus have scale to negotiate much lower fees than retail customers. With financial planning and individual client administration the only form of retail offering left for individual investors, Alexander Forbes’s ability to cross-sell to high-margin retail clients will now be severely limited.
Analysts have also pointed out that current levels of unemployment and job losses in SA do not favour players who focus on the institutional market. Like any strategy shift, time will tell if retreating from the retail market is a good decision in the long run.