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Negative charge?

Standard Life set up discretionary investment management service Standard Life Wealth last week with a proposed 1.375 per cent charge.

Standard is aiming at private clients, charities and small pension schemes with £2m or more to invest, of which £1m must be liquid. It says the service will be distinct from Standard Life Investments but the two subsidiaries will work closely together.

Standard Life Wealth, which is run by chief executive Richard Charnock, says it will leverage the strength of SLI in the institutional sector.

But the proposed charge of 1.375 per cent is causing concern, with many investors looking for around 1 per cent maximum on portfolios of this size.

Rathbones director Andrew Morris says: “This is an interesting move from Standard but I think it needs to be aware that it is a very competitive marketplace, with about 125 privateclient managers already in existence. If they are charging 1.375 per cent, with no advice offered, that could be seen as very expensive.”

Standard is initially making the service available through its wrap, Sipp and offshore bond.

The back office will be outsourced to Brown Brothers Harriman, as Standard says it wants to use a specialist back-office supplier to administer the discretionary service.

Standard says it will handle clients directly and through IFAs but stresses that it is not looking to take away adviser business.

Standard Life Wealth marketing and strategy director David Tiller says: “We will approach clients directly on a reactive rather than a proactive basis. The clients may come to us because we are seen to be open and honest rather than anything else. We expect that most of the business will be through advisers because you need an understanding of the goals to drive the investment process properly and to pull out the right information.”

Entering the discretionary management sector could be seen as yet another departure from Standard’s strategy but Tiller believes it is a wise move.

He says the firm will tailor investment portfolios to the individual needs of clients by offering them “goals-based absolute return strategies” that will focus on bespoke portfolios and meet clients’ personal investment objectives more accurately.

Seven Investment Management chief executive Tom Sheridan says: “I question these absolute return strategies because I think you risk not giving the client what they think they are getting. They sound as though you will always get all your money back and then some, which is not the case.”

Bloomsbury Financial partner Jason Butler says Standard should not automatically rely on its brand as the audience for discretionary wealth management is worlds apart from that of the average investor.

He says: “I think the problem with Standard Life is it believes people will buy its name, which simply will not happen. But it appears that it will be driven by Standard Life Investments, which is great, if you believe in actively managed investments.”

Butler draws a parallel between Standard’s new launch and 7IM’s offering.

He says that where Seven set up a wrap that grew out of its discretionary management services, Standard has done it in reverse order.

Sheridan says he is unsure if the choice of personnel are right for what Standard is hoping to achieve.

He says: “We used Richard Charnock’s team once to run our UK equities. Our issue with them was that they were fine for UK equities but in looking at an offering that would be across a wider range of asset classes and is global – well, that is not really what they did.

“Also, some of the portfolios are being offered as bespoke, meaning you wind up with possible differences in portfolios for clients with the same risk profile, which we do not think is the way to go.”

Butler says the fact that this is another player in the market is a good thing.

He says: “It brings competition, which can only be good for clients but IFAs will be concerned that they might be going after their clients. Do you really want an insurance company running your money?”

Whitechurch Securities managing director Gavin Haynes says: “I am sure that Standard Life has crunched the numbers and taken a commercial view as to why they want to do this but an investment charge of 1.375 per cent seems very expensive.

“Clients with over £2m to invest will expect institutional rates – this is more of a retail rate. You would expect this to be never more than 1 per cent on amounts this large.

“I think they will find it difficult to come into the market from scratch and convince people that they have a better offering that those existing players such as UBS and Cazenove.

“But they are ahead of the game in investment strategies compared with most other traditional life companies so I do not expect that we will see a flurry of the other, older offices following suit.”

Syndaxi managing director Robert Reid says even a 1 per charge cent is too high.

He says: “There are good players out there that will do this for 0.5 or 0.75 per cent and this is only the discretionary charge. You add on the annual charge of any collectives and you can be coming out at around 2.5 per cent. On a portfolio of over £2m, that is certainly not cheap.”

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