Having spent some time looking at this recently, I find its charging model simple to understand and am impressed by the tools it is deploying to document this in a fully compliant fashion.
Essentially, the client pays the annual management charge for the fund plus rebates of surcharges, dependent on the funds or other types of investments included. There are no charges on switching, re-registration, cash or legacy products and no exit penalties.
The diversity of investments that can be held on the platform can mean that understanding the breakdown of charges between each individual investment is slightly more complicated but we can over-analyse some of these issues. The important issue is what is the overall cost to the client.
For some time, the wrap has included a tool to generate a summary of the overall charges. In early December, however, this is being considerably enhanced so it will additionally break down the charges for each underlying investment in detail as well as showing any adviser charges that have been agreed.
Last week, I was given advance access to this new service and was delighted to find how easy it is to use.
Funds on Standard Life’s wrap platform can fall into one of three categories which will define the charges to the client. The greatest discount has been achieved for what it calls core funds. These are priced at their net asset value, that is, no initial charge, less a discount.
The next category is platform funds, which are all still priced at NAV and will include some discounts to AMC. However, if the client is using either the Sipp or offshore bond elements of the wrap, there is an additional charge of £200 a year regardless of the number of funds.
For the third category of non-platform funds, the consumer pays the retail fund price, that is, full initial and AMC deductions plus the £200 charge if the Sipp or offshore bond are used. In addition to this, there are surcharges.
These are 60 basis points for money invested in the mutual fund, Isa or Pep wrappers, this increases to 80 bps for the Sipp and 95 bps for the offshore bond.
Discounts are given to wraps with big portfolios on a sliding scale for all accounts with over £100,000 invested, with a maximum discount of 0.5 per cent for accounts over £1m.
There is also an individual equities service under the wrap but I am not going to expand on this here as I believe the above products are the primary focus for most readers.
As part of its wrap service, Standard Life has also built a powerful tool to extract data from adviser client management systems. I will be covering this in more detail in the next e-Excellence supplement which will accompany Money Marketing next week.
To use the wrap charge calculator, the adviser selects which assets they want t go into which tax wrapper, that is, wrap cash, new personal portfolio (unwrapped managed funds, stocks, shares), new Sipp, new Isa stocks (maxi or mini), new Isa cash, new Isa stocks, onshore bonds or offshore bonds.
The user also identifies which amounts are single and which are regular contributions and also where the money is coming from, individual, individual via salary deductions, or the employer. This can be done either by using the pre-population facility referred to above or by manual data entry.
To select the fund based assets to be used, the adviser can select from the whole of market or any constrained view selected by the adviser. In addition, the service offers 10 OBSR default portfolios. A tool elsewhere on the platform allows advisers to build their own portfolios which can then be included in the models the adviser can choose from at this stage.
The system then populates the selected product wrapper with the appropriate percentages of each of the underlying funds that are in the portfolio.
Alternatively, the adviser can build a portfolio from scratch by clicking into the stock or fund selection tool. This can select funds, stock and shares, cash and bonds. These can be added using fund name, fund code, Sedol/Mex/Isin and can also be validated by tax wrapper or fund type.
At this point, the adviser can decide if they want to select only from Standard Life wraps, core funds, core and platform funds or whole of market.
Funds can also be filtered by performance, alpha, beta, volatility, Fin Ex and OBSR rating, fund information, IMA sector, asset class, fund size and AMC. In this case, tables are produced listing funds by various data filters and if funds are core, platform, or whole of market.
Clicking on the fund will add it to the wrapper investment being compiled. Once all investments are identified, the system validates, screens and identifies any conflicts or states that data as been successfully verified.
The adviser can then click on a link to show the total cost of charges. This produces a summary to identify the overall average cost of AMCs, average rebate or additional charge and the effective cost of running the wrap.
It replays the split between the various different categories of funds within the wrap, that is, core platform, whole of market or stocks and shares.
The average charges are then broken down per tax wrapper. The new version of the calculator includes adviser charges as well as the above, so is now a compliant document that can be handed to clients.
In addition, Standard Life still generate key features documents for each underlying wrapper, Isa funds, bonds and Sipp (not all other wraps provide key features for Sipp). The charges’ calculator is essential in the current environment as current conduct of business rules do not allow for any way to illustrate wrap rebates. In addition, a further compliant illustration summary aggregates all the underlying KFDs and shows the benefit of wrap rebates.
If more people provided tools like this, including the level of pre-population that Standard Life offers, it could be far easier to demonstrate the overall cost of moving a client into a wrap with a number of providers in order to identify which wrap provider is most appropriate.
In the light of recent statements from the FSA, I suspect that this tool will provide a lot of comfort for any advisers who may have concerns over the costs of wrap products. Until the rest of the market catches up, Standard Life is offering the best tool anyone has yet shown me for delivering a clear and accurate understanding of the costs of a wrap. This has to be good for the adviser community and consumers and should be loudly applauded.