In a move which has surprised many of its rivals, Skandia is set to withdraw from the re-registration market – one of the key battlegrounds in the hunt for assets – due to concerns over the cost benefits of the process.
Skandia’s rivals have taken a lot of money through re-registration – Fidelity Funds-Network, more than 500m and Cofunds nearly 1bn.
Last year, re-registrations comprised up to 75 per cent of Cofunds’ inflows in the first half of the year while around 45 per cent of FundNetwork’s inflows this year have come through re-registration, many incentivised by cash inducements to IFAs and their cli-ents to re-register assets on to its platform.
Skandia is only able to re-register Pep and unwrapped business and cannot support the re-registration of Isas, which have made up the bulk of Cofunds and FundsNetwork’s re-registration inflows.
Building assets and scale is essential to supermarket profitability. Cofunds, for example, administers assets of 3bn but says it needs 6bn to enable it to break even, which it expects to do in 2006.
The process of re-registering client assets on to a supermarket platform is a costly and laborious manual process for advisers. It requires each cli-ent’s signature and then all their fund holdings have to be individually keyed into the platform’s back-office system and checked off with the fund manager in question. The fund managers typically charge 25 per holding for this service and the supermarkets absorb that cost so as not to deter advisers and their clients.
Skandia investment marketing manager Ian Thomas says re-registration business is fundamentally unprofitable, being labour-intensive with no savings from scale, and could destabilise a platform’s finances.
Thomas says he understands that it is a good deal for advisers but costs two to three times as much to administer as new business and can have a payback period of up to 10 years based on average holding sizes.
He says: “Offering re-registration as a loss leader is risky as because it is such low-margin business, it can have a 10year payback period. The pro-cess is very slow and we think that re-registration could be the emperor’s new clothes.”
Instead, Skandia will be looking to promote the benefits of moving assets via cash transfers onto its platform as a swifter and more efficient way of consolidating assets onto the supermarket.
Selestia marketing director Bill Vasilieff says he believes dumping re-registration may harm Skandia’s standing with IFAs and is potentially a more damaging strategy than shell-ing out to cover the cost.
Vasilieff says: “I am quite surprised by it. It is not the most profitable of business but it is important if you are trying to get IFAs to commit to the platform and I think they will lose a little bit of market share because of it.”
Selestia, like Skandia, is less reliant on re-registration for inflows as it also offers a range of wrappers, including life bonds and Sipps. Re-registration accounts for around 5 per cent of Selestia’s inflows.
Skandia will continue to offer re-registration for unwrap-ped fund business on to its platform because encashing these holdings and moving them on to the supermarket via a cash transfer can result in CGT liabilities for the client.
Skandia is also reviewing its position on re-registering Pep books for any IFAs moving off the platform. It will continue to offer the service for IFAs re-registering unwrapped business off the supermarket, again for CGT reasons.
Cofunds and FundsNetwork have been criticised for restricting IFA choice by forcing them to encash their cli-ent’s holdings if they want to switch fund supermarkets.
Despite offering free registration of client assets onto their platforms, both Cofunds and FundsNetwork make IFAs encash assets to switch platforms, potentially resulting in clients incurring CGT liabilities and taking them out of the market.
Selestia offers re-registration off its platform at cost price, as does HL Vantage.
HL Vantage managing dir-ector Ben Lundy says if it can manage, there is no reason why other platforms cannot.
Cofunds marketing director Rick Andrews does not believe this is a big issue for IFAs. He says: “A large number of IFAs use two platforms. Unless an IFA has had a particularly bad experience, there is no real reason to want to come off a fund supermarket.”
FundsNetwork marketing director Rob Fisher says it is not possible between the three biggest platforms, Cofunds, Skandia and FundsNetwork, but is something the industry is looking into.
Vasilieff says he is not so sure. He says that as the platforms become more mature and their offerings more distinct, there is the potential for increasing numbers of IFAs to want to switch platform.
Whereas initially fund supermarkets were primarily differentiated through fund choice and front-end tools, such as asset allocation modelling tools, the growing number of different wrappers make the platforms more distinct.
Vasilieff says: “It is a very negative stance to take not to allow advisers to re-register assets off a platform. It is short-sighted and the whole idea is purely to lock them in. We have IFA clients who want to re-register their client’s assets to our platform from competitors but are unable to do so because they are being blocked.”