With a fair degree of justification, the UK financial services industry is considered to be one of the best in the world. One of the forerunners in the explosion in global growth of financial services in saving for retirement, protection of capital and out and out aiming for capital appreciation, the UK has often represented a template for other countries.
But there have been developments elsewhere which show how even good original designs can be adjusted and improved. A case would be the adaptation of the Australian master trust concept, featuring full admin, dealing and reporting functions across a wide range of asset classes and product-wrappers.
Those with longish memories of the life and protection industry, with the growing element of investment links, will probably remember the universal life plans imported from the US in the mid/late 1980s. These plans were sometimes described as jigsaws as the policyholder could fit various pieces together according to changing requirements.
The pieces of the jigsaw provided safetyfirst savings, life cover and/or investment links, depending on the individual's attitude to risk. Health insurance, medical and even general insurance could be added with certain plans. This meant the policyholder could change the emphasis in the mix.
Younger people could put the emphasis on savings and protecting their families, then it could be adjusted to become more investment-focused towards particular personal requirements such as building capital for retirement.
One of the reasons why these plans did not prove as successful in UK was not investors were not always keen to be locked into one company. They preferred the freedom to choose the life cover most suited to their requirements and the best-performing range of funds. They soon recognised that fund management styles were different and that performance volatility could make flexibility to make change important. A fund management house might be good in one or more areas, either geographically or by sector, but it is impossible to be good at everything.
The plans offered considerable flexibility, options, change and choice but this did not go far enough when it came to available investments.
We have linked up with City-based com- pany Integrated Financial Arrangements(IntegraFin) to develop a concept offering extended investment choice based on a master trust. This allows contributors to put their money into one plan, or portfolio in this instance, but then also allows them to decide how their “pot” is allocated to the various key assets such as unit trusts, Oeics, investment trusts and other securities offered by a range of providers and then to choose Isa, Pep, pension and other wrappers. The size of the allocations can be changed, reduced or increased within the total contributions.
It is perhaps a little sobering that while a lot of noise has been heard about the regulatory environment in which the financial services industry works in the UK other countries have also brought in well designed and effective systems to protect consumers in financial matters.
The development of the master trust concept came about Down Under as a result of the disclosure rules there. It has been developed over the past dozen years in parallel with the evolution of consumer regulation.
As a result, they now have one scheme that offers multi-company usage. It is like an open market option for the contributor to choose their favoured organisation to invest with and other companies to cover their life insurance.
The major attraction therefore is that a contributor can choose different company's policies for protection and investment links. It also links to other managed funds and can even accommodate a contributor who wants a portion of their money in higher-risk specialist funds – currently there is a choice of some 150 – including emerging markets.
The UK version of the master trust has been adapted to include more UK specific products such as phased retirement and drawdowns. It can take in Isas and Peps and is flexible enough to accept transfers of existing PPPs.
But all this extended choice and improved options does not represent good value if charges are high. The charges sometimes reflect more complicated mixtures within a plan but relatively they are very price-competitive for what is offered. The UK model has been priced so that clients pay about the same as they do currently.
Master trusts represent considerable innovation. We think a lot more is going to be heard of the master trust concept in the UK.