The 2013 calendar year was a turbulent one for wraps and platform providers.
In March, HMRC ruled that all rebates to investors were to be liable for income tax. This paved the way for the FCA to publish its long-awaited platform paper in April, which confirmed that payments between asset managers and platforms would be banned – with the exception of some marketing payments.
David Tiller, head of adviser platforms at Standard Life, says the combined impact of the platform paper and tax rule changes convinced him that a switch to fully unbundled had to happen sooner rather than later.
“The final straw that broke the camel’s back was the tax on fund rebates. To us it made fund rebating as a means of discounting untenable.”
Rather than build systems to handle taxable rebates, Tiller opted to pay the income tax temporarily out of Standard Life’s own coffers and bulk-transfer all platform assets into clean funds well before the FCA’s April 2016 deadline. This bulk conversion was completed by the end of December.
The company’s actions caused several rounds of inter-platform mud-slinging in the latter half of 2013 as competitors argued that a platform-led switch to clean shares was not in clients’ best interests.
Unsurprisingly, Tiller disagrees and argues that the conversion process is complex and the platform was right to take the burden of conversion away from advisers. “Everything that was convertible has now been converted. There are a handful of funds where no clean share class is available.
We’ve notified our advisers what the funds are and it is up to them. It all went smoothly; not easily, but smoothly.”
He adds that complexity can arise in a bulk conversion where constant fund inflows and redemptions can mean that values change during the execution of a conversion, resulting in a mismatch.
“A very simple example is that we were trying to convert SLI Gars [global absolute return strategies fund] and we had to postpone a bulk conversion because of a £3.50 negative balance. That would be a reportable client money breach.”
Tiller says that despite the complexity, advocates of the alternative – an adviser-led conversion – are risking client disadvantage. “It is taking advisers away from advising clients and instead dealing with regulatory change. Part of a platform’s job is to make advisers more efficient.
“When I look at the complexity of the exercise and how it impacts on an adviser’s central investment proposition, the TCF issues you could create and the fact that you could create a situation where clients are in hybrid portfolios with some unbundled, some bundled, some taxed and some not taxed, I think it is putting a lot of burden on advisers.”
With the conversion exercise completed, Tiller says Standard Life has now dealt with its main regulatory requirements. “This year, because we have taken the decision to do the regulatory piece early, we will be past investing in regulation and moving on to investing in proposition.”
He says key developments will include a new investment hub designed for advisers and discretionary fund managers, giving them better control over model portfolios. Upgraded capital gains tax modelling will also, he claims, give Standard Life “the most integrated CGT modelling capability in the market”.
The range of investments supported on the platform will also be expanded, with structured products and fixed-term deposits set to be made available, Tiller says he is committed to “stretch the investments we cover to include the ones which advisers need to use. I’m very happy to make available any tradable, liquid market.”
He also plans to launch an executive wrap, a service designed as an alternative to traditional pension schemes and targeted at high earners, such as senior management who may exceed the pension lifetime allowance.
“With the lifetime allowance cap we are aware that executives in major firms such as partners in accountancy and law firms need to start looking at their retirement plans in a slightly different way.
“It’s going to be a multi-tax wrapper with different types of investment strategy. We’re going to move away from a simple pension scheme-based solution to a wrap platform-based solution where the employer can set it up on behalf of the boardroom on a collective price deal but with their own separate investment and tax wrapper strategies.”
Pricing for the executive wrap product has not yet been agreed, while Fundzone and Standard Life Wrap are due for a pricing update in February, following the platform unbundling.
“We are completely unbundling our fee so we will be moving to a very simple fee,” he says.
Pricing under the unbundled fee structure falls to 10 basis points for £1m-plus Isa users and although rate card pricing for Sipp wrap users is typically 15bps for any adviser putting more than £20m on wrap, Standard Life says it will offer 10bps to some clients on an individually negotiated basis.
However, Tiller warns that in his view some rival platforms have over-committed in the race for affordability and they risk being unsustainable.
“The platform market as a whole is loss making so it’s very foolish to not plan your pricing at a long-term sustainable level,” he says.
Indeed, Tiller argues that the FCA’s interest is to help make an asset transfer easier if a platform goes into administration.
“The regulators are putting a lot of focus on re-reg. To be honest, in my view that is less to do with the free flow of assets or advisers changing a platform choice. It is more to do with the mechanism for getting assets off a platform should it go down.”
But in the absence of a Macquarie-style exit or the failure of an existing provider, Tiller says consolidation through acquisitions cannot be ruled out. “We are not actively seeking buying a platform but if opportunities exist, we would have a look at them.”
But he says: “It is fraught with difficulty and risk in terms of understanding what you are buying, how much of the assets will be retained and how much technical synergy you can achieve.”
If such consolidation occurs, 2014 could be an even more tumultuous year than 2013.
Education: Royal High School/George Watsons College/St Andrews University
Career: 2012-present: head of platform propositions, Standard Life; 2011-2012: head of strategy and propositions (UK investments), Standard Life; 2005-2007: head of research and product development, Standard Life Investments; 1997-2012: strategy director, Standard Life Wealth
Likes: Rugby, diving, fishing, cooking, Italian wine
Dislikes: Fog at City Airport & Gary Barlow (over-exposed!)
Drives: Audi A4
Book: Sandman Slim by Richard Kadrey
Film: Apocalypse Now
Album: Led Zeppelin 4
Career ambition: To contribute in a small way to changing consumer perceptions of the financial services profession so there is greater understanding of how real people can benefit from advice
Life ambition: To help my kids have great lives – oh and for my wife and I to be around to see them!
If I wasn’t doing this I would be… a chef