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New analysis carried out by the lang cat on behalf of Skandia has revealed that the total cost of owning similar portfolio management services can vary by as much as 66% over a ten year period. The analysis shows how important it is to focus on the total cost of ownership, including platform, portfolio management, underlying investments and trading costs, rather than just than any one of these costs in isolation.

The Skandia Portfolio Pricing Report, launched today, compares the outcome of various ISA and pension portfolios invested in some of the most popular portfolio management services in the market, with similar asset allocations, across different investment platforms. The analysis takes into account the most recent publicly available portfolio details, including asset allocations, underlying funds, investment costs and trading costs.

The report shows the total cost of ownership for the portfolios over a ten year period and the impact these costs have on the returns generated for customers. The resulting projections show a large disparity between the services which offer the best value.

For a £75,000 investment in a pension, the total cost of ownership ranges from 1.12% per annum for the best value portfolio to 1.86% for the most expensive, a differential of 66%. Over a ten year period this results in the highest cost portfolio being worth £7,000 less than the best value portfolio.

For a £500,000 investment in a pension the impact on returns is more pronounced.  The best value portfolio has a total cost of ownership of 1.04% per annum compared to 1.60% for the most expensive, a differential of 54%. This results in a portfolio value difference of £46,000 after ten years.

Skandia says it became clear in the construction of the report how difficult it can be to access underlying data such as asset allocation, investment costs and dealing costs, for some portfolio management services. This has led to a situation in which the adviser industry, under the adviser charging environment of the RDR, is highly transparent, but some portfolio management services – to which many advisers are outsourcing their investment activities – remain opaque.  

Skandia’s new managed portfolio service within WealthSelect has been designed to simplify this process for advisers and customers by providing the managed portfolio service for no extra charge above the cost of the platform and the fund TER’s within the portfolios.

Tom Hawkins, head of UK proposition marketing at Skandia said:

“Outsourcing portfolio management can provide a great customer outcome and, as a result, is an increasingly popular option for advisers. As always, it is important to weigh up the expected value of the service with the costs and our analysis has shown that identifying the total cost of ownership of some of these portfolio services can be very difficult. We’ve had to employ an expert external consultancy to help us benchmark the costs of our new WealthSelect portfolios but I’m sure most advisers cannot afford to do that.

“In order to make portfolio management services more accessible to customers we believe there needs to be greater transparency around total cost of ownership so customers can understand what they are paying.”

Mark Polson of the lang cat said:

“Sometimes good research tells us what we know already – and in this case we were pleased to be able to show that simply focusing on one element of cost when building portfolios just won’t do. TCO is a hard beast to pin down, but when you do you can find some wildly varying results. In terms of pinning it down, we’re quite used to dealing with opacity in the savings and investment world. But even we were surprised by just how hard it is to get a common basis of comparison between outsourced investment services. And if we struggle, advisers will have it twice as difficult. It strikes us that, as a minimum, anyone offering these services should be completely transparent as to the allocation of their portfolios, the constituent elements, the TER or OCF of each element, the rate of portfolio turnover and thus the total cost of ownership. Anything else is just asking clients and advisers to take it on trust, and this sector is a long way short of demonstrating it’s worthy of that trust.

“We were pleased to see that WealthSelect is making strides towards offering this transparency in terms of portfolio cost and composition, and would encourage others to do the same.”

The report is available at  @JohnLappin will be hosting a twitter debate on the price and transparency of portfolio management with Skandia and the lang cat from midday on Tuesday 3 June. Follow @SkandiaUK or #ClearCost for details. 

About the lang cat:

The lang cat is a small but noisy specialist platforms and pensions consultancy based in Edinburgh. The lang cat works with financial advisers, providers and other interested parties, helping them develop new propositions, turn marketing strategy into action and articulate their services in such a way that people without financial services degrees have a hope of understanding them. Bit by bit, it aims to make the industry just a little bit less corporate and stuffy and a little bit more human.

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076
Amelie ShepherdOld Mutual Wealth02380 916 09107834 499 596

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.1 billion in customer investments (as at 30 September 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• The private client advisers business is now Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.