Ian McKenna: How prepared is Skandia for the RDR
As part of a regular series in the run-up to next January (see related stories on the right) , Ian McKenna looks at how firms are getting ready for the RDR.
As Skandia effectively invented open architecture some 30 years ago, the emergence of the platform community as the dominant force in UK investment distribution can be seen as the ultimate validation of the company’s historic strategy.
At the same time as everyone is emulating the feature which made Skandia famous, any business would be faced with a massive challenge of how to deliver the next level of uniqueness.
When talking about Skandia’s overall ethos, marketing director Nick Dixon is quick to point out its adviser-only credentials and to define three elements that it sees as being at the core of how it seeks to help advisers. It aims to provide systems which help with admin efficiency, enable management of compliance and risk and deliver support components that can help client servicing.
Dixon says the platform is essentially a portfolio management engine complemented with a high level of technical support.
In preparing for the RDR, he highlights major improvements to the platform. First, there is a far more sophisticated set of risk management tools specifically designed to help the adviser explain risk in simple terms. Its risk discussion tool can be found at www.skandia.co.uk/ riskdiscussion and is designed to support discussions between advisers and clients after completion of a Skandia riskprofile questionnaire.
The tool, which is elegantly simple, shows the range of annual expected returns, that is maximum upside and downside given for risk levels identified by the tool and the average possible returns, and can compare this with an alternative risk level from the tool.
The results can be generated as a pdf, to be retained for compliance purposes.
Other enhancements to risk management support include an uprated version of the U-Skan portfolio analysis tool, which can track the historic volatility of a client’s portfolio and calculate expected future volatility. The service also runs what-if scenarios to show what would have happened to portfolios if an advice recommendation, such as a fund switch or portfolio rebalance, had not happened. This obviously helps demonstrate the value of advice.
Major enhancements have also been made to the user experience on the Skandia Investment Solutions platform. When an adviser logs on, they can immediately see the total number of clients they have on the platform, total level of assets, how these assets are spread and the most recent transaction carried out by firms on the platform.
Skandia is particularly keen to provide a unified experience, where all the various components it delivers are available without the need to enter data more than once.
I hear many organisations making such claims and few, in my experience, get anywhere near delivering it. A common mistake is to assume that the platform is the advisers’ natural environment whereas, in practice, platforms should seamlessly interact with advisers’ own systems. I have not had the chance to measure Skandia’s offering in this respect so cannot pass comment on the quality of delivery in this area.
Supplying fully flexible adviser-charging support is also seen by the company as a crucial way to support IFAs. While fully recognising that the basis of advisercharging is solely a decision between adviser and client, Skandia will offer support for payments to be made from the investment platform as either a pound value or percentage amount and for such amounts to take account of initial, ongoing, switching or ad hoc amounts.
Significantly, Skandia is making a major commitment to assist advisers who want to transfer products from old-style commission-type structures to support adviser charging. It will be possible to make such legacy product transfers electronically. With the client’s agreement, advisers will be able move the old product to the new world.
Any such change will require a full disclosure documentation and Skandia is building the capacity for advisers to use its systems to generate documents that demonstrate the effect of such changes to the client. It is expected that this service will go live during the second half of the year.
The company is already committed to introducing a new, transparent model, where rebates can be shared with investors in their entirety. In addition, it is expecting to add funds which will be so competitively priced that there will be no margin for rebates, passives being cited as an example.
In addition to reducing fund costs, Skandia recognises there will be a major trend towards lower charges both for funds and platforms. Lower platform costs and building scale are seen as a crucial part of the company’s plans.
The range of advisercharging capabilities and ease of contract migration from the old world to the new are features I would expect to be very popular with advisers in the run-up to and after the RDR.
Delivering these capabilities will put pressure on others in both the packaged product and platform market to show similar flexibility. I will be watching with interest when these enhancements arrive.
Ian McKenna is director of the Finance & Technology Research Centre