June saw the FSA publish important details that will heavily influence the use of platforms and wraps. Providers and advisers must review their business mod-els to ensure they can meet the challenges set by the regulator.
The discussion paper (DP07/1) contained the initial findings of the retail distribution review and we also got a new factsheet on using fund supermarkets and wraps.
It is clear that the FSA wants to see changes that will help the market evolve, generate a positive consumer outcome and raise standards across the industry. Demonstrating client suitability and in particular the suitability of the platform service itself is crucial. To satisfy the conditions outlined by the FSA, important ingredients of a successful platform will be:
• Extensive range of funds and tax wrappers.
• A full range of customer agreed remuneration options.
• Extensive range of management information tools and client valuation capability.
• Independent risk and asset allocation tools integrated within the platform.
• Comprehensive online switching capability, including bulk switching,
• Straight-through new business processing.
• A sound reputation and financial standing.
• A range of training and support services, including face-to-face local support.
Demonstrating the value that platforms can add to the service and advice provided to clients will be crucial. Strength in all these areas will be a must have for any successful and sustainable platform.
Skandia recently carried out extensive research looking at the demand for funds. After contacting over 600 advisers, 78 per cent responded to show that they wanted a platform provider with access to 1,000 funds.
When comparing charges, it is important to consider the total impact of charges across the platform.
Our fund group colleagues often remind me that of the top 50 performing funds five years ago, only two funds are still in the top 50 performing funds today.
Switching is therefore vit-ally important to both advisers and clients. Within Selestia Investment Solutions, we offer this service free of charge, therefore encouraging the use of a well structured investment strategy that can be reviewed and adapted when needed.
In other platforms, a switching charge of around 0.25 per cent is common. Basic maths shows that a single switch on a £20,000 fund generates a £50 charge. Active switch activity can result in a substantial increase in costs that are often ignored when making comparisons.
Reputation and financial standing
The importance of this should not be underestimated. A number of leading platforms in the UK continue to make a loss and rely on additional funding from shareholders.
Selestia Investment Solutions is built around a robust and sustainable business model. In doing this, we will sustain and develop the platform to ensure it meets the demands of advisers and clients. Basic laws of business prove that initiatives that do not make a profit rarely, if ever, stand the test of time.
Range of customer agreed remuneration options
Skandia’s new platform has been built to provide access to the widest range of flexible customer agreed remuneration options, including switch commission and the ability to add nominated trail commission.
A question raised by some is why make changes retrospective and move away from a flat 0.5 per cent trail commission? This change is consistent with other platforms. Also, if an adviser’s business model is reliant on exactly 0.5 per cent trail, then this can be matched using the nominated trail facility.
Many advisers have already made it clear that they have considered the FSA’s papers listed above and will use our enhanced services to the full to redesign the service they provide. This is together with a revised remuneration structure at or above 0.5 per cent using nominated trail and switch commission to reflect the changes.
I should also point out that the change to trail commission will not be implemented until January 2009. Also, Skandia Life products are not affected by the change.
Our new platform is not just for “brand new customers only”. In many ways, this is an area where you are damned if you do and damned if you don’t. However, we believe there are huge benefits to be had over the life of the platform. Key issues:
• Legacy is a huge problem within the financial services industry but we are preventing future legacy issues by carrying our existing customers forward and allowing them to have the same benefits as new customers.
• We have enhanced our investment tools many times over recent years. All will benefit from the current and any future changes.
• Current and future fund additions will benefit all as markets conditions and popular funds change.
• A full range of tax wrappers are available. We will continue to enhance our range of tax wrappers as demands change.
• Access to market-leading straight-through processing can help create efficiency.
Success over the longer term in this market will require a robust and sustainable business model. Matching and building on the ingredients listed above will be key for anyone looking to meet the future challenges set by our regulator.