The never-ending pursuit of lower charges seems to have become an obsession in the investment industry and it is now the number one issue among advisers, investment providers, life offices and platforms.
While low charges are significant, I believe most people in the industry would agree overall quality and value should be the key determinants in selecting a product or services. But are we doing enough as an industry to highlight quality?
The typical IFA client is unlikely to shop for food at Aldi or Lidl. Yet market forces seem to be driving advisers to recommend their financial counterparts. To me this begs the question, what elements of a financial product or service make them the equivalent of a Waitrose or Marks & Spencer and how can we highlight them more both in the industry and to clients?
One area worth considering is perhaps the extent of support for tax planning. In a perfect world, every adviser would have access to a comprehensive suite of tax planning tools embedded within, or at the very least fully integrated with, their client management system or other such software as they use to run their business.
In practice, few adviser software systems operate detailed CGT reporting, so if a platform can supply this, it has the potential to be a major benefit to both adviser and client.
High quality tax planning software is not cheap, so providing it as part of a platform offering strikes me as a significant attraction. Equally, no one wants to pay any more tax than they need to, yet if an adviser is not able to fully harvest a client’s CGT exemptions year on year that must be a real risk to their reputation.
A great example of how to add value in this way can be seen in Novia’s CGT planning tools. These highlight where the power of a tax planning tool is really in the detail.
Its offering enables users to explore both realised and unrealised gains. In the case of the former, it particularly enables the adviser to make allowances for situations where an asset may have been acquired before an in-specie transfer or re-registration.
When creating reports, the service can raise the acquisition cost of the asset by the same amount as any notional distribution removing it from capital gain, ensuring that clients do not pay CGT on an asset that they have already paid income tax on.
This is obviously really important when it comes to tax planning on any assets that have been held in accumulation units. Any tools not able to do this run the risk of failing to gain the full benefit of tax that has already been paid.
To try to put this into context, Novia shared with me examples of where the difference between a tool that fails to address this issue and one that does could be as much as a 5 per cent tax charge, which probably puts a saving of 10 or even 20 basis points in the headline costs of a platform into stark contrast.
The unrealised gain report enables advisers to produce a detailed summary of all a client’s holdings and related gains to assist them in utilising the client’s CGT annual allowance. This should be particularly useful when using a “bed & Isa” arrangement to harvest the gains. The report can be output either to a pdf file or to Excel, with the latter giving the ability for the adviser to model the amount of each asset being considered for disposal, including the ability to look at the impact of only liquidating part of an individual holding.
The cumulative impact of failing to fully harvest allowances on a £250,000 investment over 10 years at 5 per cent growth would equate to approximately 1 per cent of unnecessary tax charge if the client only used the allowance in the final year of disinvestment. Again, this potentially puts other headline costs in the shade.
For readers who wish to explore these calculations in detail, Novia has put them on a web page at www.novia-financial.co.uk/information/capital-gains-reporting-tool.aspx
Novia tells me that no other platform provides this level of CGT reporting and certainly no other platform has shown me a similar capability. However, if advisers or other platforms disagree, please share your views via Money Marketing Online.
The above suggests to me that in delivering this CGT reporting module, Novia has come up with a great way to provide services that are far more valuable than just shaving a few basis points off cost.
This leads me to question what other features various different platforms offer that can provide such differentiation? In coming columns, I would like to look at similar features that can help demonstrate value over price.
If we are to convince consumers that value is not all about price, it is important to have an active dialogue about the features and service that do and do not add value and I would like to start such a debate using the discussion features Money Marketing’s new website offers.
Are there other platforms which offer a similar level of CGT reporting capability or indeed does anyone else do it even better?
Equally, what other features from platforms deliver functionality that can really differentiate their offerings?
I would like to invite advisers and platforms to put forward their suggestions for the features they believe are most valuable so I can explore them in more detail in coming months. Please share your views via the comments section of this column at Money Marketing Online.
Ian McKenna is director of the Finance & Technology Research Centre