With Covid-19 vaccines now approved and discussions of a post-Covid wealth tax to partially fund the enormous debt resulting from this pandemic, the importance of tax planning is ever-more important.
We initiated research that was carried out by NextWealth last year into financial advisers' usage of capital gains tax tools. It has shown that 78% of advisers who advise on non-pension wealth, advise and actively monitor their clients' capital gains positions.
Indeed, when rating the importance of tools provided by platforms, they rated CGT tools second only behind performance reporting. Given the last 12 months, and the move to remote working, the need for interactive tools has never been greater.
Of those advisers monitoring CGT positions, only 62% actually use the tools provided by platforms. Of the remaining advisers, half resort to Excel to perform the calculations and the other half use various tools and in-house software provided by their adviser group.
Given that platforms generally provide their tools for free, it is surprising that nearly 38% of advisers opt for alternatives that are less integrated and more costly. This may be partially explained by advisers' use of multiple platforms but feedback from this survey has shown that there are also some significant shortfalls in functionality offered for this purpose.
Feedback provided in this research offered up some interesting comments that explain the poor usage rates of most CGT tools on offer.
- Only 45% of advisers reported that their CGT tools supported Off Platform positions and carried forward losses
- Only 35% of advisers reported that their CGT tools correctly supported the impacts of Corporate Actions on the investment cost base
- Only 36% of advisers reported that they were able to enter scenarios and see the impact of trading before releasing instructions
- Only 39% of advisers reported that their tools provided any form of tax optimisation calculations
There were also numerous comments about the lack of other basic features such as the ability to see both realised and unrealised positions simultaneously, the ability to enter historical costs of re-registered assets, the ability to see impacts to tax positions before trading, the management of inter-person asset transfers, CGT harvesting to ISAs and the ability to aggregate data across multiple platforms.
Our research estimates that less than 20% of all advisers feel that their current CGT tools provide them with a fully comprehensive suite of functionality to ensure both accuracy of the reporting as well as the tools they need to manage tax positions of their clients efficiently.
R and D
We used this as a basis for a research and development project to extend functionality within our Cobalt microservice. This allowed us to extend the product to include best-in-class optimisation routines to target asset sales considering resulting realised gains positions, cash proceeds or combinations of both.
The tool also supports aggregating information from multiple platforms and boasts a suite of tools that allow data from platforms to be enriched to support all of the comments made by advisers in this survey.
We have always been evangelical about microservice architecture. This is all about the integration of software components into an ecosystem and each independent component focusing on a single job and doing it well. Microservices are also supported by the philosophy of automation in testing, deployment and monitoring that ensures quality and performance.
This is a classic case of a single software application built with a sole purpose and that can be robustly integrated into any technology ecosystem. It can be integrated to a platform technology stack or, indeed, within an adviser group technology architecture integrated to multiple data sources.
I think it is absolutely crucial to get direct input from the adviser community to assess the functional shortfalls of the software that is exposed to them. We are very thankful for the input on the shortfalls of capital gains tax tools and hopefully have made some headway in setting a new benchmark going forward.
We have many more plans for this and will again be obtaining feedback from the adviser community as a key driver to these future developments.
Ray Tubman is managing director at FinoComp