Skandia’s new free discretionary proposition, which has its low cost WealthSelect fund range at its core, is set to shake up the managed portfolio service (MPS) market.
It has been greeted with scepticism by some industry executives, who say the decision to offer active portfolio management and asset allocation effectively for free could devalue the work involved with existing adviser propositions.
Skandia, led by Paul Feeney (pictured), has a huge reach in the adviser market, with more than £26 billion in assets under administration and 22,000 financial adviser relationships across the UK. Moreover, the new discretionary service has Skandia’s WealthSelect range at its core.
It has an average annual management charge of 0.52% with no additional charge for its managed portfolio service.
Whether discretionary managers want to admit it or not, Skandia’s new free discretionary service will prove a challenge to what is already a competitive and saturated MPS market. Discretionary ‘service light’ propositions for advisers are currently priced from as little as 0.25% to 0.3% before platform charges. And some believe having a major player offer a free discretionary service will provide further downward pressure on fees.
It should be noted the proposition is not whole of market because the underlying WealthSelect fund range comprises 42 funds that are run by Old Mutual Global Investors, with over half of sub-advised by external investment houses, including Aberdeen and BlackRock. John Ventre, Old Mutual’s head of multi-manager, will run the discretionary service, offering different risk profiles that are rebalanced on a monthly basis.
Alistair Campbell, Skandia’s head of investment marketing, expects the MPS launch will put downward fee pressure on competitors, which he views as a positive for the adviser community.
While portfolio management is free, the average platform charge on Skandia is 0.48% and responsibility for suitability falls to the adviser.
Campbell hopes the MPS will appeal to advisers looking for an outsourcing opportunity that does not cost a lot of money and lowers their administrative burden.
‘This was why the solution made sense from the advisers’ perspective. From the clients’ perspective, they are looking for access to funds at an optimum price and they have a portfolio that does not cost them the traditional fees DFMs might charge,’ he said.
The firm hopes it will appeal to existing adviser clients who do not currently use a discretionary manager, alongside new parts of the market.
Robert Imbert, who helps advisers to appoint discretionary managers at the Alternative Exchange, expects the proposition to pose a challenge to ‘service light’ unitised MPS rather than those offering access to a dedicated investment manager.
He views it as a retention strategy or way to retain market share as opposed to a means to attract new business. He believes the strategy is sensible, given Skandia’s distribution, but says due diligence requirements among advisers for active asset allocation should not be underestimated.
Andrew Shepherd, co-managing director of Brooks Macdonald Asset Management, does not view Skandia’s new service as a challenge.
‘If you have got the quality in terms of the performance and service you provide to advisers, you have not got much to worry about,’ he said.
Shepherd said advisers should ensure they are aware of platform and potential ancillary costs. He also expects restrictions, such as having to primarily use Skandia’s risk profiler and not having external discretionary managers available on the platform, to act as barriers to Skandia attracting new business. Nonetheless, he believes the service will gain traction with existing clients.
However, in his view, offering the service for free will ultimately prove a negative for the existing MPS market. ‘The DFM market needs to make sure it stands up for itself and offers great service at a reasonable price but the market can’t go to zero. We need to stand up for what we are worth,’ he said.