Skandia WealthSelect: Is The ‘Platform’ Tail Wagging The ‘Investment Proposition’ Dog?

Good old Skandia, soon to be branded Old Mutual Wealth (see what I did there?) finally announced the details of its much talked about WealthSelect range of funds and discretionary portfolios.

In all, a total of 42 active and 3 passive at an average of 0.52% AMC, which apparently is 2bps cheaper than HL Wealth Plus average AMC of 0.54%! (a strange and pathetic comparison methinks!). In addition there are 10 multi-asset funds – the existing Generation and Spectrum range. The idea is that advisers can use these funds individually or use the discretionary portfolios, mapped of course to Skandia risk profile tool!

Half (21) of the active funds are Old Mutual funds and the rest are third-party funds under sub advised mandates; 1 from Aberdeen, 2 each from Artemis, Blackrock, Invesco, JPM, Newton, Schroders, Threadneedle and 3 each from Henderson and Fidelity.

At first glance, a few decent third-party funds on the list, although you won’t find any of the more…. ‘sophisticated’ funds that  you would expect in a DFM portfolio on the list!

We don’t know what the TERs on these funds are as of yet but there’s no additional cost for running the discretionary portfolios – just the underlying fund charges and the platform cost! As someone who obsesses all day long about total cost of investing, it would be hypocritical of me to suggest that the lower cost isn’t a good thing for the poor souls who end up being put in these portfolios. Given that cost is by far the best predictor of fund performance (Morningstar 2010), you are probably better with low-cost mediocre funds than expensive star funds!

I suspect (and this is entirely my guess, no evidence whatsoever) that the third-party funds would probably not be much cheaper than their typical clean share class equivalent. The average cost is probably driven down by Old Mutual own funds, which make up the majority of the funds. We’ll know for sure when we see the full details of fund charges later this month. Having said that, I think the idea that advisers will select funds based largely on costs is ill-advised! Ask our friends at Schroders, who announced the closure of their low-cost UK Core fund on the same day Skandia announced its low-cost fund range!

The real issue for advisers who are going to use these portfolios as their core investment proposition is…. yup that over-debated, thorny and vague issue of independence status! Here is the thing, if you are using Skandia portfolios, made up of largely Skandia’s funds, mapped to Skandia’s risk profiling tool, run under Skandia discretionary mandate, exclusively on Skandia’s platform– it doesn’t take a lot of imagination to suggest that you are probably Skandia’s tied agent!

Sometimes our memory in financial service is a bit… ehrrr… ehrrr…  shall we say, short? But surely I’m not the only one who remembers this one here or thisYup, OM/Skandia has made no secret of its ambition to own/control distribution channels; it might even consider building its own sales force! It already has a pretty strong asset management business, a big administration platform, and it wants a piece of the distribution pie as well. Or at least it wants a meaningful degree of control over what stuff get sold by advisers. Hark! Herald the return of tied agents!

OK, whatever you think is implied above is preposterous and completely untrue off course, only a figment of your own imagination! But if you must, go on then… indulge your own imagination a little bit… let it run wild a little… …you are running a big provider, keen on owning/controlling your own sales force, how would you do it? Would you take the trouble of building one from the scratch, or go through the hassle of herding cats of independently–minded advisers who prefer to do things their own way (including running their own portfolios) or just find a way to control/influence those advisers already on your platform to use your own ‘investment proposition?’ Tell me, tell me; how would you do it? Let your imagination run wil…d!

Ok, enough Yoga! Back to the real world and to the question of independence. Those who disagree  with me would say ‘well, as long you are not using Skandia portfolios exclusively for the majority of your clients, then that’s fine.’ That may be true but it does defeat the purpose of ‘de-risking your business’ by using centralised investment proposition from a big strong provider, doesn’t it?  Can you imagine using a bit of Skandia portfolios here, a bit of your own portfolios there and some  portfolios from other DFMs or Godknowswho for different segments of your client bank?  The whole thing becomes a bit messier, doesn’t it? Messier and riskier!

One question I ask advisers often is this – Is your platform tail wagging your ‘investment proposition’ dog! Why you would want your platform to drive your investment proposition?  Really, why? In an ideal world, you would design your investment proposition first and then choose your platform. May be you would do both at the same time, but surely the platform shouldn’t dictate your investment proposition? How would you justify portfolios that are exclusively available on a single platform as your core investment proposition? If ever you decide to change your platform, it’s back to the drawing board them with your entire investment proposition because you probably can’t re-reg away from Skandia? And don’t even get me started on the wisdom of using provider’s own risk profiling tool? The whole thing has bias and restricted model written all over it.

Presumably the Skandia portfolios are meant for advisers who don’t already have an investment proposition or who aren’t entirely happy with what they have? If so, why would you start by selecting Skandia’s portfolios, which is made up of Skandia’s funds, mapped to Skandia risk profiling tool, available exclusively on Skandia platform?

And if you were truly independent, you would start with the whole-of-market of retail investment products, then I couldn’t possibly imagine how you would arrive at the same solution – Skandia’s portfolios, made up of Skandia’s funds, mapped to Skandia risk profiling tool, available exclusively on Skandia platform? (Have I beaten that horse to death yet?)

If you are ‘independent and want to use these portfolios as your core investment proposition, you probably want to know a bit more about the funds selection criteria? How much role commercials played in the selection process? Is the mandate permanently restricted to these 45 funds then? How often is that going to be reviewed? Would they from time to time, add other funds not currently on the list? I can’t imagine that they wouldn’t! And if they were to do that, would they  negotiate AMC with fund managers each time? That I find hard to imagine.

Also all the funds in your portfolios are OEICs/Unit Trust – that’s no impairment on independence status of course, as long as you have documented evidence that the entire relevant market of retail investment products has been researched and there are good reasons why ETFs, Investment Trusts  etc have been completely discounted! And by good reasons, I don’t mean ‘ because they aren’t available on Skandia’s platform!’ I’m sure the clever folks running these portfolios have thought about this already and probably have documented evidence to that effect…. err… you could just copy and paste then?

Anyway, I should probably shut my piehole now as I suspect I will probably get a phone call from Skandia’s head office if I go on any further and in any case, nothing I say would influence anyone considering using portfolios, not that that’s intended in any way of course!

 

NB: The use of Skandia, Old Mutual Wealth or OMGI interchangeably is entirely deliberate.

 

 

 

 

 

Abraham Okusanya
Director
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

He holds a Master’s degree from Coventry University and an alphabet soup of qualifications, including the Investment Management Certificate, Chartered Financial Planner, CFP and Chartered Wealth Manager designations. He was one of 5 finalists for the Professional Advisers Personality of Year Award 2015 but the award went to a more deserving winner, obviously!

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