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Why? An inaugural blog from Mike Barrett

Sorry if I’ve mislead you with the blog title, but this blog is about me and nothing to do with Annie Lennox’s 1992 smash (no. 5) hit.

Everyone knows you should never start a presentation with an apology, although curiously some of the best presenters I’ve seen do. On that basis it must be even worse to start a new job with an apology, so…sorry. Again.

You still here? Good. Let’s crack on.

So. It’s all about me. It’s my third day so if ever I’m going to get away with being pretentious & self-obsessed today is the day.

Over the last few months I’ve had a bit of time to be able to think. I’ve only ever had one proper job (unless you count supermarket baker or part-time DJ) so it was a big decision for me to join Leith’s leading independent platforms, pensions & investments consultancy.1 Toss in the fact that the lang cat HQ is around 480 miles away from my home in Cowes and the natural question I was asked by a lot of people was “why?”

I believe the question of “why” is a critical one for financial services firms to be able to answer. What do you stand for, but more importantly, why do you believe it matters? Most providers are hilariously bad at answering this, normally trotting out lines about how they passionately believe in great customer outcomes, as if anyone would say the opposite.

If you can’t articulate what you do, why you think its important and why it matters then your business, whether that’s advice, provider, asset manager or leading investment consultancy is a commodity. Your customers will feel the same loyalty and engagement with you as they do when putting petrol in their car.

A few months ago, Paul Resnik from FinaMetrica tweeted the 20 industry changes that, in his view, make this time the most challenging time he has ever experienced. I view these changes as exciting, rather than simply challenging. And I would add 3 others to his list.

  1. The current system of saving and investing desperately needs to change. The recent (excellent) research from True Potential “Tackling the savings gap” shows 54% of Britons are saving nothing for retirement. Of those who are, the average amount was £1640 over the 3-month period in question. Not a bad amount, until you consider that on average £1849 of new debt was taken on during the same time. Oops.
  2. Moving to my favourite subject of platforms, it feels like this market is about to experience a whole heap of change all of its own. Firstly, generally speaking, platform technology is old and in some cases in desperate need of updating. Most providers are going through this process over the next few years, and the one thing you can guarantee is a bumpy landing. The associated costs are significant and advisers will need to closely interrogate platform technology upgrade plans to ensure their businesses and their clients are not adversely impacted.
  3. Linked to the above will be the imminent thematic review into adviser due diligence, potentially covering investment solutions, DFMs and platforms. This will be the first time some advisers will have seriously looked at platform due diligence since the RDR and, realistically, sunset clause too. How will platform selections pan out in a new world, with a new set of regulatory good practices, adviser revenue less reliant on trail commission, and easy (in theory) re-registration of assets available? Any provider who can’t demonstrate why they deserve to be trusted with a client’s savings might find the next few years very challenging indeed.

So, why did I join the team at the lang cat? I don’t for one minute think we are going to change the world and solve all of the above, but there is more than enough change happening to keep us entertained. The good news is the team love all this detail and can see the absurdity in a lot of what the financial services industry does. Better still, we really love decoding all of this detail into plain language that people will actually be able to read without wanting to weep.

So if you need help understanding more about these 20, sorry, 23 significant changes that are currently taking place, and building your own answer to the “why” question, then get in touch.

1 – probably…

Sparryheid and the Internet of Things

It’s summer 2010. The first investment platforms have just turned 10 years old. The digital revolution is in full swing. There is no One Direction.

In a (sort of) alternate reality called THE PLATFORM WORLD a keen young development analyst (we will call her Janice) has, whilst on annual leave in that free thinking state of mind, come up with an idea. Sitting on the hotel balcony downloading a news app to her new smartphone, it hit her. Suddenly. Smack bang in the pus.

Janice thought ‘hmm, we should have one of these for THE PLATFORM. It would be, like really useful for clients, this is the way the world is going ’.

Three weeks later. The monthly development meeting. Janice has got her idea on the agenda (item three). She has issued a one pager setting out the rationale for, and main functionality of, THE PLATFORM MOBILE APP. The change manager announces item three.

Enter Sparryheid, a senior manager. Sparryheid hasn’t quite found the time yet to log on to THE PLATFORM itself, but that’s O.K cos he can talk pretty convincingly about what a DFM and a model portfolio is. He also knows all about these app things and has even downloaded one to his work Blackberry. Not only that, Sparryheid can see the bigger picture.

He clears his breath and wipes his beak: ‘I’m not sure we know enough yet, Janice, to put any effort into developing web applications (sic). It’s not something advisers will value and people won’t ever actually use mobile phones in connection with more complex financial matters. Most importantly, it’s not really got any commercial value. Let’s keep this on the back burner and concentrate on getting our ducks in a row so we can pick some low hanging fruit, O.K? Thanks Janice’. A few apparatchiks nod. They all move on to the next agenda point.

 Back in the real world

Now, to be fair to the entirely fictional Sparryheid, launching a mobile app would have been a bit ahead of the game in 2010 and he was under pressure to get the basic trading functionality back working. The problem is though that big organisations take a lot longer to develop things than anyone ever thinks. Now that most adviser platforms are aged between 9 – 15 years old, how are they keeping up with the mobile internet era? The days of using anything fixed to a desk as the first port of call to either browse and do stuff on the internet are already over (for example, it’s just been announced that 3/4 of Facebook’s advertising revenue is from mobile ads). Just for the fun of it, and because I like tables and things, I’ve scouted around the 13 leading adviser platforms looking at whether they offer a mobile app for the platform itself, or, if at least their corporate website is configured for mobile use. Guess what?

Leading 13 adviser platforms, May 2015
    Mobile app for the platform 2 out of 13
    Main website mobile configured 2 out of 13

Now. In recent years platforms have been variously in the throes of upgrading, or replacing, the core software and or getting things right for the RDR (and the sun is still setting on that one). Modern technology stuff has been less of a focus and that’s understandable. It’s fair to say that these big distractions have not helped our flag bearers keep up with other sectors on the technology front.

Although us office-based fuddy duddies of today still use on-desk plugged in things to do the majority of our work, mobile devices are unequivocally the first (and increasingly only) port of call for getting information from the web.

The average advised platform client is currently aged north of 58, so on balance has probably been less inclined to shout for mobile accessible to the platform itself. But this won’t last forever – the digital revolution is now in a mobile internet phase, things are moving at an incredible pace, etc. What’s really surprising is the lack of mobile configuration on websites.

This would be the case anyway but, as of April this year, Google changed its algorithm to include mobile friendliness as a ranking criterion, so the message on that one is: better get your mobile experience addressed!

So whether it’s playing catch up with today’s technology, or getting It right for the future (Internet of Things anyone?) I think now is the time for Sparryheid to get ‘modern stuff’ further up the development list.

All characters in this blog are fictional and any similarity to anyone living or dead is entirely unintended and coincidental, but quite funny if it happens.

With apologies to Irvine Welsh for nicking Sparryheid from ‘Wayne Foster’ in The Acid House. Buy his original here.

A dam fine retirement guide

Having spent the last couple of months SWIMMING in the pool of change that is the UK at retirement market – not just DIPPING A TOE, you understand but DIVING right on in there – a couple of things struck me.

First, that freedom can be a pyrrhic victory. Old King Pyrrus of Epirus might have started the trend but that whole winning-in-such-a-way-that-you’re-no-better-off rather suits our British demeanour. We tend to expect it to go a bit wrong, that there will be a catch. And sometimes there is.

Consumers now have freedom to do what they want with their retirement savings, for good or otherwise. But in handing over that freedom, a layer of protection is lost. Some poor decisions will be made and some people will have a poorer retirement as a result. Because this is about a person’s whole retirement. Potentially until they are 90 or more. And it feels as if the importance of income lasting for that whole time has been set adrift in a sea of UFPLS (is a name that sounds like a Hogwarts house really the best we could do?) and marginal tax rates.

The other thing to strike me was that, yet again, the industry is firing well over the heads of many of those most in need of accessible information. Predictions of a return to advice aside, there are many consumers with smaller pension pots and no intention of seeking advice. And probably not even guidance.

Based on what we’ve seen from providers’ own experience, an awful lot of that particular group and probably others don’t even have a grasp on the basics. Take state pensions. We’ve all heard of numerous cases where consumers don’t know how much they are entitled to or even when they can start to receive it. Hardly anyone has worked out that there will be a tax bill if you cash in your pension. Still feel comfortable chatting through the finer points of Ravenclaws?

But why the sudden interest in this one topic? Why the PO(U)RING over research and SURFING numbers? Well, it’s all been in the build up to opening the FLOODGATES for When The Levee Breaks: What Next for the UK Retirement Savings Market? All the water gags making more sense now? See now how the blog title isn’t a typo? Good. Attaboy.

langcat_retirement_pages

Where was I?

Ah, yes. This is the lang cat’s take not just on what’s been happening in the run up to 6 April and THE BIG CHAAAAAAAANGE but what might happen in the coming months and beyond, how the landscape might look and what that means for advisers, providers and consumers.

You can find out all about it here and, thanks to those nice people at GBST, you can download it for not-a-single-penny. There might be a lot of reports on the subject at the moment but we’re pretty confident that this is the only one featuring lizards. And a rather good dingo joke. Go on, you know you want to.

D2C #heatmaps – Update

With ISA season upon us, it’s time for a quick refresh of the lang cat pricing #heatmaps. There’s been a bit of activity recently in the market, so it’s worth having a very quick Woody’s Roundup of what’s been going on;

  • Nutmeg complimented its ISA offering with the launch of a pension. Same charges apply.
  • TD Direct made a very welcome move by removing exit fees from its platform. Doesn’t affect our tables but we give them a double fist pump nonetheless
  • The hitherto comically cheap proposition from iWeb became less so as it increased its account opening fee from £25 to £200. (That’s 700% for the arithmetic fans) We’d previously ignored this charge in the tables as we focus as a rule on ongoing annual costs. However, a £200 fee is too large to ignore, so we’ve pulled this out in a ‘year 1′ row.
  • AXA Self Investor & Close Brothers have special offers running. We show these in the tables as year 1.
  • Willis Owen – who we’d lampooned in the past for being awfy expensive – became significantly less so with the launch of a new charging structure. Much, much more in line with the market. We’ll cease and desist from the Different Strokes jokes now and move onto someone else.

The links below take you to 2 files showing the most up to date #heatmaps, one for ISA and one for SIPP. Both show the annual cost of investing, displayed in both percentages and pounds. If you’d like tables that show only %’s or poonds, then please get in touch.

Latest ISA Tables_Merged

Latest SIPP Tables_Merged

As with any set of data, some house rules apply so it’s well worth having a quick read of the assumptions we make;

  • We look at ongoing core platform and wrapper costs. We don’t add in any initial costs. (except iWeb – keep up) These are few and far between and quite frankly are finicky to amortize (posh – convert) to an annual, ongoing basis.
  • We assume investment in funds. Tables looking at equity investment are available on request.
  • We assume the cost of making 5 full switches throughout the year, equating to 5 buy and 5 sell transactions.

If you’re a journalist, and would like to use these tables, then please do get in touch typically via either Mark Locke (07718424711) or Steve Nelson (07429404356) for comment or further content.

Launch a secondary annuity market and then you can go out to play

For anyone even skimming HM Treasury’s consultation paper on the launch of a secondary annuity market, the lack of enthusiasm in its presentation was palpable.

The press release and subsequent paper is permeated with the belief that ‘for most people, sticking with an annuity is the right thing to do’. It feels very much like a schoolboy who has grudgingly finished his homework so he can go and play with his friends. Whether George Osborne has friends is another matter but the point remains.

You’d be forgiven for thinking young Master George was acting under duress. And in a sense, he is.

It will have escaped no-one that our population is ageing. And that means the voting pool is ageing – the proportion of over 65s increased by 2 percentage points between 1987 and 2010. Add in the fact that this group is more likely to vote and quite a few of them have annuities and were a bit narked at missing out on the first round of pension freedom and ‘Hello, secondary annuity market!’ What do you mean, there’s a general election in less than two months? Really? Really? Well I never.

But here we are and it’s going to be one to watch; even if it does feel a little like the consultation paper equivalent of turning The Hobbit into a movie trilogy. At least the consultation might stick to the basic premise of the paper and not randomly introduce questions from other proposals.

The thing that really bothers me about the whole concept is the lack of a clear beneficiary. Correction; a clear beneficiary who isn’t actually being mugged but is unable to see it or who is taking time out of their busy schedule of tying young maidens to railway lines. That’s a pretty low risk activity on the Fife    Circle incidentally.

Should things proceed, the unholy trinity would consist of:
• The original annuity provider – who wants to make money
• The potential third-party annuity holder – who wants to make money
• The current annuity holder – who wants as much cash for their annuity as they can get

It doesn’t take an actuary to predict the inevitable carve up. The original annuity provider is in the strongest position – the have the power of veto. The annuity holder, not so much. While they can shop around for potential third-parties, there is no flexibility around the existing annuity provider.

One added concern is that investors looking to cash-out annuities are likely to be removed from an advice relationship; setting up the annuity may well have been the end of their perceived need for advice. Given all the additional costs being loaded into the process through underwriting, administration, re-assurance and so forth, it’s unlikely that annuitants with smaller to mid-size pots will take a further hit by paying for advice. While we’re on the subject – how likely is it that these consumers will understanding the scale or detail of costs coming out of their converted annuity pot?

The consultation paper suggests that third-party acquirers could offer their own flexible drawdown or annuity to house the newly liberated fund. On the upside, this could mean a new prospect for distressed annuity providers. The downside is that we could be looking at an action replay of consumers opting for the (newly) existing provider rather than shopping around for the second time in rapid succession. If they shopped around the first time.

There’s a real prospect of consumer detriment here, more so than with any of the other freedoms, with the added risk of another rapid implementation. Done correctly it might meet a need for some consumers, albeit at a cost. Done poorly and it feels like legalised pension liberation.

It’s hard to see how, in the majority of cases, this will be the best route for the consumer in the long term. HM Treasury seems to agree (the consumer protection chapter could be boiled down to read ‘humped’) and the reaction so far in the trade press is pretty one-sided.

The outcome of the consultation process could be instructive, not to mention the outcome of the general election – one party’s hobby horse is rarely the successor’s highest priority – but we have to assume that it might happen. Electioneering aside, it seems as if a great deal of effort and attention is about to be devoted to something which the government is generously predicting to be a ‘niche market’.

the lang cat recruits Mike Barrett from Old Mutual Wealth

Yes, you read it right. Big news and great times for us. The below is the text of a press release that’s going out today. We are very excited, but we’re sitting down so you can’t tell…

The lang cat, Leith’s leading[1] independent platforms, pensions and investment consultancy is almost childishly excited to announce the appointment of Mike Barrett as Consulting Director.

Mike will join the lang cat team in mid-June having spent 18 years working in a variety of roles at Old Mutual Wealth, most recently as Platform Marketing Manager. The lang cat has employed a food taster for Mike to ensure no funny business between now and then from the Southampton bruisers.

His knowledge and experience of platforms, their users, and the regulatory challenges facing both will complement the existing lang cat team, especially with further FCA work in the area of platforms expected later this year. Mike will be based in the South of England and will be responsible for sharing the lang cat love throughout London and the home counties.

Mark Polson, principal of the lang cat said “Well, this is getting embarrassing. If people who actually know what they’re talking about keep joining, we’ll have to stop mucking around and do some actual work. Despite living in the sunniest place in Britain, Mike has a deep and highly creditable darkness in his character, and will fit in nicely.”

Mike Barrett said “The lang cat is a company I’ve admired for several years. The depth of insight their output contains puts them in a league of their own, and this is down to the quality of people in the team. I’m really excited about joining.”

Tom Hawkins, head of proposition marketing at Old Mutual Wealth said “We thank Mike for his strong contribution over the past 18 years and wish him all the best for his future career with the lang cat. His responsibilities as platform marketing manager will be taken on by the existing proposition marketing team.”

 

[1] Probably

 

 

 

 

Under penalty of death

(Mark writes: this is Terry’s very first blog as a feline at the lang cat – we’re chuffed to have him here. You can email him at terry@langcatfinancial.com)

After last week, we’ve now had two budgets in a row, and a not really in autumn statement in between, that have changed the savings landscape forever. Last year’s budget was the biggie; delivering no less than an actual revolution in the pension system…and not only that, a huge shot in the arm to the Isa market. The subsequent not really in autumn statement and this year’s budget have built on the core theme of encouraging savings and making them easier to access. Approaching April, the go-live for pension freedoms is almost upon us and for a few months now it has quite rightly been getting massive national coverage as the implications have filtered through to the mainstream media such as the BBC.

GYMBOA, but at a cost

Now, cast your minds back to 3rd December last year when the not really in autumn statement took place. Two of the additional measures announced were the ability to pass on pension savings tax free on death, and, any ISA savings passed over on death can retain their tax free status.

In adviser platform land, providers have already been stripping out GYMBOA (Getting Your Money Back Out Again) costs from pensions, because advisers wouldn’t wear them, and because it was one avenue left to compete on price when cutting core charges became unsustainable. However, some do still remain (when using equity trading instruments in particular) and watch this space for more on that at a later date.

However, with direct platforms things are a bit different and some rather hefty and more obvious GYMBOA costs are still the norm.

But it’s the charges on  passing on ISA savings that has sparked a heated debate at the lang cat port authority. We’re a bit grumpy about it.

Plain English (sort of) example time:

Mr Johnson dies with an ISA holding of £18K. Mrs Johnson also has an ISA holding of £18K. What were the odds? Regardless of that year’s ISA allowance and future contributions, Mrs Johnson now has an existing tax-free holding of £36K, meaning the combined amount can benefit from tax-free growth in an ISA wrapper.

So far, so good. But…

…what we are specifically concerned about are the costs associated with moving the holdings to a different ISA, which Mrs Johnson may well want to do. The average UK ISA pot size is £16K*. For those who charge (and to be fair some don’t) £25 per line of stock is a typical charge to re-register off. Plain old withdrawal or transfer tends to come in at around £25 for the whole policy.

*HM Revenue and Customs 2014 (stats from 2011/2012, the most recent available).

In the name of fairness, I’ve generously added 12.5% to the 2012 average pot size, to give the £18K figure. If Mr Johnson had 10 lines of stock – pretty common these days, especially with providers encouraging diversity – the overall re-registration cost is going to be a whopping £250, or in other words 1.4% of the total holding.

This is not small beer. If Mr J had held the investment for five years, paying 0.35% as a platform charge and the average value over that period was £14K, he’d have paid around £245 in platform charges. So the account closing costs in this example doubles the overall charges taken on the account. Is this right? Does it really cost the provider £250 to close the account and cede the holdings?

A further issue is that although £25 per line to re-register is standard, it’s usually much less costly to sell down and transfer. This provides a cost-based dilemma to consumers because they might decide to transfer because it’s so much cheaper, when staying in the market is what they’d really have preferred.

So, dear providers, here’s a thought. Why not stop charging people to GYMBOA whatever the circumstance? O.K, so that is perhaps not going to happen overnight but there is an opportunity to at least remove these charges from policies that become the ownership of a deceased spouse. It is just the right thing to do but, surely, it’s also fair to allow inherited holdings to be consolidated free of cost bias.

Gordon Bennett, that was poor

Confucius say, “Success depends upon previous preparation, and without such preparation there is sure to be failure.”

Having ignored these wise words; Natalie Bennett, leader of the Greens, has no doubt crawled into a hole to hide for a while and lick her wounds.

This morning she was quizzed on the radio about some figures on Social Housing. She ummed, ahhed, coughed and spluttered and generally made a bit of a pillock of herself. It was truly awful. If you’ve not listened to the interview and you get a kick out of schadenfreude, set your cringe-o-meter to high and have a listen here http://order-order.com/2015/02/24/natalie-bennetts-fuel-efficient-car-crash-on-lbc/

So, why am I blogging about the misfortune of Ms Bennett? She has nowt to do with platforms, pensions or investments.

Preparation is the answer. It doesn’t matter what the subject and it doesn’t matter who’s interviewing you. It could be Paxo, it could be an intern on a community radio station. If you’ve not prepped, you (and worse still the company you’re representing) risk coming across as ill-informed and irrelevant.

I’ve had to prep many execs and company spokespeople for interviews over the years. Some recorded, some live. The best spokespeople are always prepared. They accept that they are there to make their company look good. They accept they might be asked awkward and uncomfortable questions. And they accept that they need to do their homework – not just on the topic de jour, but on all the toxic stuff that you hope never to have to answer.

I suspect Natalie Bennett might be doing one of two things today: Accepting she was to blame for being utterly unprepared and taking personal responsibility, or firing her PR adviser whose job it is to ensure she doesn’t come across as Kermit the frog…. (a green Muppet… Geddit?)

D2C Platforms – the lang cat heatmaps

If you’ve come to this page looking for the latest lang cat D2C pricing tables, then you’ve hit an extraordinary stroke of luck. (Or just followed a link sent by us. Whatever)

Attached below are 2 files showing the most up to date lang cat #heatmaps for D2C investment, one for ISA and one for SIPP. Both show the annual cost of investing, displayed in both percentages and pounds. As with any set of data, some house rules apply so it’s well worth having a quick read of the assumptions we make;

  • We look at ongoing core platform and wrapper costs. We don’t add in any initial costs. These are few and far between and quite frankly are finicky to amortise (posh – convert) to an annual, ongoing basis.
  • We assume investment in funds. Tables looking at equity investment are available on request.
  • We assume the cost of making 5 full switches throughout the year, equating to 5 buy and 5 sell transactions.
  • There are a few special offers on the go at the moment – namely for the upcoming ISA season. We include these along with a note of the terms.

The tables will be updated on a regular basis, typically whenever a provider makes a change to its pricing model or if we make a change to our assumptions.

If you’re a journalist, and would like to use these tables, then please do get in touch typically via either Mark Locke (07718424711) or Steve Nelson (07429404356) for comment or further content.

Latest ISA Tables

Latest SIPP Tables

It’s all getting real – Hargreaves puts its vest(ing) on

I’ve always liked those moments when big, abstract concepts become real and commercial. A-Day was like that – it was fun debating what was going to happen, but much more fun when you started to see how providers, advisers and clients were going to relate to it in real life.

An important step towards this stage (or stage towards this step if you prefer, doesn’t matter) happened today for the NEW GOLDEN DAWN OF PENSION FREEDOMS with big Bristol beasts Hargreaves Lansdown announcing a £295 plus VAT (£354) charge for stripping your fund completely in drawdown.

Let me qualify. Clients who transfer into a HL drawdown plan and strip the fund within a year will be expected to stump up. Those who are Vantage SIPP clients already and move into drawdown won’t (says our man in the thick of it in BS1). Provisions are in place (use your best ominous voice for this) for those who either try to leave a peppercorn amount in their plan to avoid the charge, or who transfer to a Vantage SIPP, flip to drawdown quickly thereafter, and then get their money out.

HL has also removed its ‘standard’ drawdown charges, meaning you no longer get charged £354 on the way in, £12 to change your income, or £30 for ad-hoc withdrawals (all including VAT).

Now, we don’t like exit penalties here at the lang cat, and we’ve poked HL with a stick numerous times in print on that basis. But this feels OK to me, and here’s why.

First, it’s not an exit penalty (despite Money Marketing’s headline to the contrary). It’s an admin charge. This looks remarkably like the immediate vesting pension (IVP) market of the 90s and early 2000’s, where a time and effort charge was applied to those who wanted to bounce their pension in and out of a provider.

(One of the potential outcomes of the new freedoms is a re-emergence of the IV market as people try to turbocharge their access by side-stepping cumbersome lifeco systems, especially in the non-advised space. We view that as a potential area of concern; something we’ll be writing more about soon.)

Secondly, HL is playing it with a pretty straight bat in that this is only aimed at those using them for ‘clearing’ and not for genuine longer term customers. Whether their provisions to combat those who try to game the system are good enough, only time will tell. So that feels OK – and the removal of their other drawdown charges is very welcome.

If you’re Hargreaves, you’re the most visible and accessible direct pension and investment provider in the UK. That means people will try and use you for all sorts of pension matters, and not give much thought to whether it’s economic for you.

In one sense – who cares? In another, HL has every right to levy a charge.

Is £295 plus VAT the right amount? I don’t know. But I do know that HL has now established a price anchor in the direct market, and others with similar capabilities will most likely now feel more able to declare their hand.

We remain of the opinion that HL charges very fully for what it does, and that its £25 a line exit fees need dragged out behind the woodshed and killed with an axe. A charge for immediate vesting is not the devil’s work.

It’s all getting real, sports fans. We’ll keep you up to date with what happens next…