Despite its rapid growth since launching in 2001, Selestia's future might be uncertain if parent company Old Mutual's purchase of Skandia goes through, says Christopher Salih. But marketing director Bill Vasilieff is convinced the company's status as a provider of bespoke adviser solutions is secure
Initially dubbed 'Project Mars' within the confines of its parent organisation Old Mutual, Selestia has been amongst the few stars in the wrap cosmos since it launched in October 2001. The group has grown quickly in terms of assets and fund managers, amassing a total of £1.5bn under management with 824 funds from 63 groups. But now that Old Mutual has bid for Skandia - owner of the largest fund supermarket in the UK - its future is open to question. Will Selestia follow the example of Beagle 2 on its route to Mars and get lost in the wider cosmos? Or could the two continue to coexist under the same parent company?
Under its previous guise, Selestia had already spent 12 months developing its business with the help of actuarial and investment consultant Watson Wyatt Worldwide. The group also had £25m invested up to its launch from Old Mutual, giving the group the opportunity to hit the ground running.
Bill Vasilieff, marketing director at Selestia, says: "When we saw the market going in an open-architecture direction Skandia was the only major player already in that area, so there was a great opportunity there for us. All of a sudden there was a host of big players like Cofunds, FundsNetwork and ourselves all competing in the open architecture space."
The Selestia platform has many attributes that conform to the traditional understanding of a wrap, and while it only caters for mutual funds it has a range of tax wrappers to choose from. Vasilieff says: "Advisers have complete freedom on our platform. They have the choice in terms of picking funds and whether they wish to use our range of tools or not. Yes it is an aggregation service, but it does not have all the attributes that conform to the understanding of a wrap in somewhere like Australia. The main difference being that we don't offer shares and we are priced much more like a fund supermarket."
Vasilieff says the platform was never intended to appeal to everyone in the market. He adds: "This has never been intended as a mass market venture. We are very keen to work with advisers who have the same vision as us of having a strong, transparent, open-architecture platform built on the back of ground-breaking technology. We want to structure strong, sturdy partnerships with those advisers."
Selestia's open-architecture platform has the weight of its charges upfront. However, it also remunerates advisers with flexible levels of commission. The groups Isa, Pep, Collective Investment Account and Sipp Solution services all have a minimum investment of £2,500, whereas the group's offshore and onshore Collective Investment Bonds have a minimum investment of £10,000.
At present the platform does not offer alternatives or investment trusts. However, Vasilieff says that is something the group may remedy in the near future. He adds: "We intend to have investment trusts and alternatives on the platform. We are looking at this right now."
Vasilieff believes the charging structure of the platform is good value. He says: "We are transparent. We buy from the fund managers at creation and on average we keep 25 basis points of the rebate from the fund manager. We also have an annual charge of £75 a year, which is irrespective of how many investments you make. There is also no charging at all for switching, which most groups cannot say."
Vasilieff believes there are similarities between what Selestia offers and traditional fund supermarket and wrap models, but there are also subtle differences. He says: "Fund supermarkets live off a rebate of something like 25 basis points from fund managers, whereas a wrap offering may live off something like 50 or 60 basis points. However, fund supermarkets are built upon the idea they are free, it is part of their core offering. But they have to tie with third parties (life companies) who are very expensive and have different values. They are actually sending a bit of a mixed message, on the one hand you have a fund supermarket which has a large range of products that are free and on the other hand you have life companies' ranges that are both expensive and restrictive."
"We are much more of a wrap than a fund supermarket. Open architecture platforms are much more of a wrap thing," adds Vasilieff.
Selestia launched with three investment tools in the shape of its risk profiler, asset allocator and fund selector. The group's approach is that the investor determines their investment risk profile and then, with the help of their adviser, selects an asset allocation that aims to give the best returns for that level of risk.
The range of tools has since been bolstered to five with the addition of both Yield Investor and P-Scan joining the initial range. Launched in July 2004, Yield Investor took the group a lot of time to develop. Vasilieff says: "It is aimed at people who have - or are close to - retiring from work and are nervous about spending their capital. The tool is essentially designed to assist advisers constructing portfolios for clients whose aim is to take income from their portfolio while leaving their capital intact."
P-Scan, which launched in 2003, is also an important tool according to Vasilieff. He says: "P-Scan is unique - it enables the adviser to take a snapshot of the client's existing investments, investigate their top ten holdings as well as their geographic exposure. This allows the adviser to access and compare the risk element of the existing portfolio with the client's current attitude to investment risk as outlined in the risk profiler. P-Scan also provides the adviser with the facility to back test portfolios, comparing them with past performance tables if desired."
Selestia also has a relationship with the manager of manager specialist SEI Investments. Selestia announced in September 2005 that advisers would be able to access SEI's manager of managers' solution directly via the Selestia investment tools. The new tools provide a two-step process. Firstly, once the attitude to risk has been ascertained through Selestia's risk assessor, the adviser can then click on the manager of managers' option and will be presented with a pre-populated, asset allocated portfolio tailored to the risk level selected and constructed from SEI funds.
Vasilieff says: "The relationship with SEI is becoming more and more important, not all advisers want to pick funds, they also want pre-defined portfolio solutions. Advisers now have the outsourcing option, meaning that while Selestia does the asset allocation, SEI will pick the fund managers."
A-Day is also prompting changes to the platform. "We are working flat out on launching a new product wrapper for A-Day as there is going to be massive changes to the whole pensions system," says Vasilieff.
While some believe that the leading providers have formed an oligopoly of the wrap market, Vasilieff says that is anything but the truth. He says: "The market is definitely not closed to new entries and I do foresee a couple of major players joining the market still."
However, he believes there are a couple of barriers for new entrants to overcome, "Technology is a major barrier to entry, especially as it is coming along in leaps and bounds. Another problem is getting partnerships with adviser firms, because once they sign for one group the norm is that adviser firms stay with that group," he adds.
Perhaps the biggest potential obstacle to Selestia's future development is from Old Mutual's potential acquisition of Skandia, announced in 2005. Skandia has one of the largest and best-known fund supermarkets. No details have been released regarding how the two would co-exist. Vasilieff says: "No plans regarding the platform have been announced. The deal has not yet been completed and as a result there are no more details."
The fund supermarket side is the most obvious area of synergy between the two groups and Skandia undoubtedly has the bigger brand. Any predictions on the future of the two groups are pure speculation, but it seems unlikely that Old Mutual would not attempt some form of consolidation.
Any questions regarding the future of the group are unlikely to be settled definitively for some time. With that in mind, Vasilieff is certain that wraps rather than fund supermarkets are the way forward. He says: "The questions for the future is will fund supermarkets survive?
"Despite doing well initially by offering a free service, they are actually losing money hand over fist. They are linking with these life offices that are also losing money and in the long run someone is paying. The wrap offering is far more complete. We conceived our offering on what the market both wanted and needed."
'Failure to pay attention can result in enforcement'
200,000 LISAs opened so far
From June 2019
11 years since launch of three Chartered titles
Hired 200 extra operational staff