Mark Polson looks at freedom of movement between wrap platforms
The debate around re-registration on wrap and fund supermarket platforms tends to be more visible in the specialist investment press than in the retirement press.
However, the truth is that the issue affects customers, not products. We all know now that retirement does not necessarily just equal pensions in terms of product solutions, and so the retirement savings market is just as affected by this brake on the free transmission of capital as the rest of the retail investment market.
If we substitute the word 're-registration' with 'in specie transfer', we can start to draw lines with the pensions market proper. This is all about making sure clients' portfolios are run in the most efficient manner possible, irrespective of tax wrapper.
As wrap platforms firm their grip on the UK intermediated financial planning landscape, consolidation across portfolios will become as important as pension transfers have been since the introduction of exit-penalty-free stakeholder plans. Issues about how one moves clients' money from platform to platform freely across all wrappers will replace the debate about whether you can shave three basis points (bps) by transferring a pension from provider A to provider B. As SIPPs spread their wings and start to fly, clients will increasingly use all the nice investment flexibility we have built as an industry, making in specie transferring or re-registration that bit more complex.
The real issue
So what is the issue? Put simply, some providers in the UK platform market either do not allow re-registration or only allow it in narrow circumstances. This is done, one can only assume, in a misguided attempt to retain assets for longer (financial products are notoriously sensitive to persistency in terms of profitability). This forces clients who wish to move from platform A to platform B to encash their investments, have time out from the market, (possibly) incur a capital gains tax (CGT) liability and then invest with the new platform provider.
We think this is not a great way to be treating clients. If a client has gone through a review process with an adviser, has had costs and remuneration discussed and disclosed and wishes to move from one platform to another, then they should be free to do so without needing time out of the market and additional administration.
Our view is that if a client in the new model platform environment wants to move, they'll move. It is pointless and counter-productive to try and stop them. In fact, there is an argument that says if you know you are free to leave, you're more likely to stay. We have certainly seen that a number of advisers have been attracted to our proposition because they know if we fail to deliver, they can remove their clients without disadvantaging them.
I suspect this is what the FSA may have had in mind when they drafted TCF outcome six - 'consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.' Advisers would not recommend a pension product that didn't allow a client to transfer out if they wished in the future - so why should they put up with platforms that do put these restrictions in place?
Holistic financial planners now have greater flexibility and control at their disposal for running client portfolios than ever before. Platforms have done many good things, but the one thing they don't do is exempt advisers from having a responsibility to recommend solutions that are suitable not only at a point in time, but have the ability to cope with changes in circumstances.
We all know that retirement is evolving from an event to a process, and financial planning needs to evolve along with it. Holistic relationship models should be facilitated by platforms.
The key point here is simply that tax wrapper (or 'product') selection comes at the end of the advice process, not the start. It's by no means certain that a pension is the only method a client will use to fund their retirement goals, and so it's crucial that the platform can be flexible enough to work with the client as their strategies shift. If one of those strategies has to be to move away, then we should be grown up enough to deal with that.
It strikes me that we have the ability, using platforms, to redefine at least part of our industry and regain the trust of the public. We do this, simply, by aligning our interests. Platforms do this powerfully, by making sure that advisers, providers, fund managers and clients all want funds to grow as quickly as possible. Get this right and we can forge nothing less than a new consensus and covenant between the industry and the public. One that is sustainable, profitable and enjoyable; that transcends product silos and really deals with what it is that clients actually want.
This isn't hard to do. All we have to do is to remember to put the customer at the centre of our propositions. It's their money, not ours. If we do this, then the alignment of interests takes care of the rest whether we're using pensions, ISAs, bonds, mutual funds or anything else to help our customers reach their life goals. Every step away from that overarching goal is a bad step. Let's drive out the old thinking, one part at a time, and let's start with opening up our platforms and empowering clients and their advisers. What's the worst that could happen?
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