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Skandia eyes profits after ‘swift’ cost-cutting

by Jun Merrett on Jan 18, 2013 at 09:44

Skandia eyes profits after ‘swift’ cost-cutting

Skandia’s platform business is set for profitability after ‘swift’ cost-cutting measures that included the axing of 200 jobs, according to Paul Feeney, chief executive of parent Old Mutual Wealth.

Feeney (pictured) said the platform had reached profitability this month on a run-rate basis, reversing losses that had hit £5 million in the first half of last year. He said that a crucial factor in returning to profits had been removing the ‘life company costs basis’ of the Skandia platform.

'We are the largest platform in the UK and we have to be profitable. As of this month we are profitable on a run-rate basis. [Large scale job cuts with other platforms] is inevitable. There are businesses out there, and we were one of them, who have platform revenue basis at a life company cost basis. You can have a platform revenue basis with a platform cost basis but you can't have [one of each],’ he said.

'Platforms have to stand up on their own cost base, for us to run a lean wealth solutions business, every aspect of it needs to stand on its two feet and the platform has to be able to compete and be an effective proposition on its own.'

Skandia announced it was cutting 200 jobs in October last year as a result of the overlap of roles created by the merger of the business with Old Mutual Global Investors. That merger will see the Skandia brand phased out, as part of the rebranding as Old Mutual Wealth.

Skandia’s costs have come into focus with the implementation of the retail distribution review and the Financial Services Authority’s changes to platform rules. Last year a broker note from Investec Securities warned that the platform’s 0.5% margin on assets would come under threat. Skandia has unveiled an unbundled platform pricing model with headline rates higher than rivals Fidelity FundsNetwork and Cofunds, but placed stock in its ability to command higher rebates from fund groups for its users.

Feeney argued the platform’s scale meant it would continue to secure a better deal from fund managers than its rivals.

'We're the largest distributors of investment products in the UK and we want the best deal for our IFAs and their clients,’ he said. Feeney added that while some fund groups had promised a deal that would be no worse than that offered to others, the platform was demanding more. ‘If they want to work with us that's what they have to do and we're confident they will,’ he said.

The upcoming launch of Old Mutual’s Select fund range, which will be targeted at restricted advisers and run by a panel of fund managers, has drawn comparisons with St James’s Place, a parallel that has not been weakened by the group’s aim of buying stakes in adviser firms.

But Feeney denied the move was shifting Old Mutual’s focus away from the platform business.  

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19 comments so far. Why not have your say?

Ian Lees

Jan 18, 2013 at 10:39

It seems that RDR may yet prove to be useful in at least one area - that being the actual cost of selling products - where insurance companies have relied on new business figures to justify the costs - yet many have become insolvent, and purchased by other insolvent institutions - bailed out by the taxpayer, who are ripped off by high interest rates in excess of 8% when the bank rate is some 0.5% . What used to be classed as back street money lenders - have come to the high street ( when the other shops have closed e.g Woolworths Comet, HMV etc.,). Interesting then that councils have spent billions tarting up the high street, with granite blocks and revamps from European money and European sources - rather than those available in the UK - but apprently they are cheaper - even when the currency exchange is taken into account - and the freebies and free trips to other destinations - for councillors and their cronies - are paid for out of tax raised form the local taxpayers. Insurance companies now are realising the proper work of IFA's and some tied agents - whether restricted or partly restricted ( designed to mislead the public ( like supermarket beef burgers - being horsetraded - but apparently their meatballs are the dogs bollocks ? ) . It is all about " transparency", something IFA have done for decades. The reason - they have an inherent interest in looking after their customers - they are hard to find, sometimes difficult to deal with - but becasue theytrade honestly - they provide a good, profitable - working relationship. This compares with the horsetrading of client banks between financial institutions, banks insurance compaies and national IFA's and national tied agents e.g St James Place, L& G Scottish Widows etc.,Interesting St James place is owned by TSB along with Scottish Widows, as introducers to clerical medical ( who no longer exists ) and Halifax owned - St Andrews Life . Don't you just love . . . "Simplification ! "

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Anitaki

Jan 18, 2013 at 10:49

After previous cost-cuttings, downsizings and other "reorganisations", l am truly amazed to learn that there were still 200 staff left

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One is afraid

Jan 18, 2013 at 11:04

'Platforms have to stand up on their own cost base, for us to run a lean wealth solutions business, every aspect of it needs to stand on its two feet and the platform has to be able to compete and be an effective proposition on its own.'

Yes, quite right. With current service standards and some demotivated front line staff, I would be amazed if Mr Feeny could repeat that statement in 6 months time

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Bob Donaldson

Jan 18, 2013 at 11:10

Their is a price to pay for everything be it the advice, product or the administration. You can only cut so far and then the service goes down the pan. With Wrap Platforms it is imperative that the service is of the best and Skandia has not fitted this for some time now.

I come back to it put the following companies in order that they will disappear from financial services:

Scottish Equitable

Skandia

Aviva

Legal & General

Etc Etc

Our once great industry, the savings culture, the pension benefits have all been slowly been decimated by over regulation, government tinkering, the stupid of some CEOs that run the companies and it is far too late for sanity to be restored.

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Ian Lees

Jan 18, 2013 at 11:13

@Anitaki . . I havn't seen anyone from Skandia since the last Centruy . . i.e the late nineties - when an " advisor " recomended skandia - on the basis he was invited to the Southampton Boat Show for business produced. Unfortunately that particular event was not on the " Synaptics" product research and the " adviser " was no longer engaged either. I have had two events on technical training from Skandia - which I have found most useful - but no service from Sales Directors or sales consultant since 1998. Skandia is not alone in their field - I have not seen a consultant form scottish widows since 1993 - except Invesco Perpetual Roadshows - where I assume they are sent for training ? The same holds true of many companies - where the Directors of these bonus stricken insurance companies have decided to remove the business relationship - have no idea who their customers are, no idea of their abilities - and refuse to provide any support or assistance. It is the same with banks - where they refuse to provide service - yet charge for banking "service". Perhaps the trading standards would look into the service " provided - and decide if they are legal. Perhaps these directors have been eating just tooo . . . . . many horsey burgers ?

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michael bates

Jan 18, 2013 at 11:28

In a badly-supervised and confused industry we've actually found Skandia to be one of the best all-rounders. What now I wonder? Hopefully the bedrock of investment products - MUTUALITY will be restored by some clever person who is not a City gladiator out to ensure that shareholders (short-term) benefit and screw policyholders (long-term). Out of proportion bonuses and short-termism is the problem. But it's not too late.

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Dave

Jan 18, 2013 at 11:32

@Ian - As somebody who worked as a broker consultant for a number of years before the various "strategic reviews" meant that those jobs just weren't there any more, perhaps the reason that you were not visited by anyone from life offices is that they didn't think you had the potential to write enough business to justify it? The broker consultant was always a sales function (whatever crap we/they speak about building strategic partnerships and providing support) and if it was considered that you weren't going to/able to write a sufficient amount of business, then nobody would call on you.

Post RDR, this will only be the case.

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Anitaki

Jan 18, 2013 at 11:50

Agreed

20 years ago, got diaries, pens, umbrellas, mousepads, (NPI diaries were the best) ScWIds the best 'paraphernalia', and all now consigned to history. When did you last get a diary from a product provider?

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A P

Jan 18, 2013 at 12:09

Anitaki - try actually having a good business to business relationship with them as opposed to expecting freebies.

i include a few chosen account managers in my business plan and find the support i get invaluable, which does not mean a free diary. But my clients get better pricing, better service and I get proper support.

Would you expect your clubcard points if you did not shop at Tesco's ?

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Anitaki

Jan 18, 2013 at 12:16

@ A P

Thank you for your "advice". Now retired after 40 years, you obviously are clueless about "the way things were". Nobody "expected freebies", but they were offloaded upon us like the King distributing largesse. It was effectively like a bribe, not a reward, but given because they wanted business that we were giving to others (because their PRODUCTS were better, not their freebies). Nonetheless, l think the reps/inspectors were given carloads of these things to distribute to promote name awareness, and having paid for them, l think the providers wanted them distributed to all and sundry as quickly as possible. THAT is an indication of just how things have changed since 20 years ago.

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David Dunlop

Jan 18, 2013 at 12:46

As mentioned in previous comments broker support is dependent on an IFA's ability to actually write reasonable volumes of business. I have always found Skandia to be excellent and the support provided by their guys on the ground invaluable.

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l'ifa passeport en provenance de France

Jan 18, 2013 at 13:02

how good was cowes week ? proper corparate hospitality that was

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Bob Donaldson

Jan 18, 2013 at 13:29

It is not just about the support it is about the platform in general. How can you operate a wrap without a cash account taking charges in small amounts from each fund. Try monitoring this.

Ask them for a phased retirement quote and see how long it takes?

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Ian Lees

Jan 18, 2013 at 14:28

@anitiki - It is as you say the freebies " were just offloaded ", to those brokers willing to be subservient and could not say No ! to the providers because of the cost rather than the quality of the event. I have no objection to providers making use of a facility - to get their product or service over, but the reality was many wanted to emulate Hambro Life and Abbey Life - by providing porr events to compete with the quality of Hambro Life. Rather than flounder around at Cowes ( or wherever ), Hambro Life built training into their events. Some events now provide an opportunity to mix with providers eg NBA - where we had the opportunity to check out Cazenove and their new or newly improved products. Simply filling the free bags with plastic pens and notebooks - or in the case of scottish widows - handing out umbrellas by the bucketload - I took two and they were useed for covering my prize winning dahlias - for the country fair - I mean you wouldn' want to be seen in public with them - and the umbrellas from Octopus are so much better in quality. In the rainy season in Edinburgh becasue of the many people employed at standard and life and scottish widows - many red blue or blue and white brollies were seen running down princess street - it is a pity nbeither their products nor their investment returns were waterproof ?

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Ian Lees

Jan 18, 2013 at 14:40

One of the best gifts provided by scottish widows was the photocopiers . We were able to hand out umbrellas by the bucketload - gave the directors a warm feeling - thinking that scottish widows was well used or famous ? The reality was that many advisers used other more reasonable and professional firms. Scottish Widows feel out as a result of poor quality of service with many good brokers - and then held them to account by slagging them of e.g DBS

Scottish Widows paid commissions of up to 150% of Lautro - provided you sucked up to a manager - or pension consultant - and made " a promise to produce more than £ 10,000 EAP , or 30,000 EAP". EAP = Estimamted Annual Payment i.e the the monthly premium. Single premiums were divided by 10 . In London Area my top broker was producing 120,000 EAP - ( and that was only after stakeholder pensions had been introduced ) . I had over 600 names and addresses of IFA's/ tied agenets - and a target of 850,000 EAP - after negotiation with the branch manager . This was with a product range of a low cost endowment, a personal pension policy and some term assurance . There was an expensive Capital Investment Bond (CID ) and a five year annuity funding a CIB, or the VIP a twenty year endowment - which was awfully good for commisions. If a broker did well - they might get invoted for a day out to France - free all expenses paid ( some to the manager some to the costs ). In Edinburgh the staff regulalry went round the office " for contributions to personal telephone calls ". I wonder if they reported these earnings to the Inland Revenue. Still it left money for those who wished to participae in the scottish widos sweep - of nominating someone who would die . First and second prizes available.

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Ian Lees

Jan 18, 2013 at 14:58

@dave, The point I made is " no one form the life company ", bothered to come round or find out what potential I had, have at any stage. As a Financial Planner I call this a discovery meeting . For instance if they had bothered they would have discovered just how much new business I had written - with e.g standard life. Alternatively, they do not know what levels of production I have ( nor you probably - or many financial planners or IFA's or tied agents ). One company provided a consultant who was desk bound - had no car and had to refer everything back to their manager - " saying I am not sure I will just have to check this out with my manager ". Whilst I believe in training and feel the company should be training their employees - I do not wish to spend my time trianing these hapless and largely incompetent individuals - no matter how nice they may come across - or the pens they might send or diary. E.G Standard Life has stopped sending diaries some years ago.

Interestingly in 1999 I was producing in excess of £ 000,000's in commissions ( for someone - not scottish widows, becasue they refuse to provide an agency - and all our scottish widows clients are held by other agents - for their safety ).

The direction of your comment is that I am not worthy of a consultant - " becasue I am not producing enough commisions for these companies. Let me be clear these companies and the brokers they hold as agents were earning less than £ 10,000 each year when I was sent down form Edinburgh to London . Many had no earnings with scottish widows ( some 570 agents ). Fortunately I discovered Financial Planning and switched to fee based - scottish widows refused to rebate commissions into peoples products - clearly becasue that meant their other supporters would lose out. It is called Protectionism - scottish widows operates a similar strategy with others .

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ANDY WOOLLON

Jan 21, 2013 at 09:39

So lots of valid comments around lack of Broker Consultant support, falling service levels, reduced technical seminars etc, BUT, there is only so far advisers can demand Platform costs are driven down, without realising that as the biggest cost is people - the very people that you have said above that you want - until such point as you will be doing it all online or over the phone yourself.

If we look at what has happened to Comet, HMV, Jessops etc, their demise has been to (try) offer a F2F service in an online world. Whilst people value F2F contact, they don't want to pay for it, which is where we are increasingly getting to in financial services.

Consider this. Whilst you may use the cheapest Platform available, if there is no/limited support, which therefore increases your costs - be it because of poor servce/no technical support etc - then this will increase your adviser charges, meaning that the client may then switch off your adviser charges and move to a cheaper Adviser (who uses a slightly more expensive Platform, but which keeps his costs down because of the support/service etc).

For me, we need to keep in perspective the overall client picture/total cost of advice, from adviser charges to Platform/tax wrapper costs and to fund manager costs/rebates, otherwise all we will end up doing, is moving costs from one to the other.

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Ian Lees

Jan 21, 2013 at 10:12

I quite agree, with Andy Woolon, the cost of our service is charged out at particularly good rates - which meets our requirement for profit. The clients agrees our fees up front, and a retainer for our services. We call our service " Client agreed remuneration ", before teh fiddly services lack of authority and selective regulator - brought up their requirement of " treating cusotemrs failry - whilst allowing banks to fiddle the Libor rate and allowing banks to swindle people out of their savings. Our service has been agreed with all our clients since 2003. Those who are unhally or unwilling to pay - find an alternative ( in two cases banks - who charged them 8% of funds i.e £ 8,000 to transfer them into their bank account wrap provider. Interestingly the client confirmed the funds had gone down after the advice of the " bank relationship manager ", by a further 3- 4%.

Now forced enrolment into pensions -will further impact on the taxpayer - lack of advice, lack of control over costs and charges - means few insurance comapnies intend opto participate - only insolvent insurance companies like scottish widows - who are " introducers " to clerical medical - offer advice and assistance.

For us the wrapper - needs to be able to provide products and services - which include support from business development consultants and managers - who are at one with service. Fees costs ad charges are set in advance - can be ammended up or down - depending on the cost of provision of services - and the extrotionate rates of increases of charges by the FSA/FCA, FSCA Professional Indemnity etc., Then and only then will advisers continue to offer sound advice - provide services and help customenrs secure the correct advice the correct product - to help them to achieve and maintain their lifestyle - that they want throughout retirement.

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Anitaki

Jan 21, 2013 at 11:09

Good point Andy

It was many years ago that it was realised "industrial branch" stuff was so labour intensive that it cost more to collect than there was for the product provider to invest.

So, moving on 40 years, computer age, staff cut to almost nil, and eventually l fear the whole thing implodes when there's nobody left to answer the phone.

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