Industry Insight and Practical Application; Rebates and Legacy Rosanna Williams-Wood Business Consultancy

1. Industry Insight and Practical Application; Rebates and Legacy Rosanna Williams-Wood Business Consultancy

2. Learning Outcome • Understand that landscape of vested interest in the platform market, what you need to consider in due diligence and gain a real understanding of the rebates and legacy issue from the FCA paper PS13-01

3. Client Fund Group Provider/Operator

4. Quick Reminder R-Day • Applies for: • new business • top ups • increases to regular premiums which are not automatic increases • fund switches in Collectives and ISAs Adviser Charging ~ Upfront and Ongoing • Trail can continue if: • No new money is paid in • No change to the product • Fund switch in a life policy (Bond or Pension) • Reduction in the investment amount or the level of regular payments • Change from accumulation units to income units or vice versa • Portfolio is rebalanced based on pre-RDR advice. Commission/Fund Based 2012 2014 2013

5. Q1 2012 • Final Guidance on Legacy Commission (PS12/3) • Consultation on Platform Regulation Regulation Journey • ‘R-Day’ – 31.12.2012 • Adviser Charging • Adviser Services • Professional Standards • Platform rebate disclosure • Re-registration Nov 2011 “Guidance Consultation” on Legacy Commission published (CP11/26) April 2013 HMRC tax rebates returned to clients (non-wrapped products) from 6/4/13* Final rules on Platform Regulation (PS13/1) “Disturbance” IS – Fund Switch IS NOT – rebalancing based on Pre 6/4/14 IS NOT – On Regular Premium April 2014 – NEW Business Rebates Banned (to Cash) – New Business 6th April 2014 Rebates can no longer be retained by the Platform Service– New Business Rebates can be passed back to clients in the form of units* April 2016 LEGACY Business (pre 6th April 2014) Rebates can no longer be retained by the Platform Service post 6th April 2016 for Existing Business

6. Rebate taxation • 25 March 2013, HMRC confirmed fund rebates and commission given up (pre-RDR) on unwrapped investments (Collective Investment Account)should always have been deemed as an “annual payment” for taxation purposes. Takes affect from 2013/2014 tax year • For a basic rate taxpayer – no further tax liability in terms of annual payments will apply. • For non-taxpayers (individuals, Charities, SIPPs and SSASs – they may be able to reclaim the tax deducted). • For higher and additional rate taxpayers – any further tax liability will need to be declared by self-assessment. • May 2013 HMRC clarified that offshore clients must be able to receive rebate income without incurring any tax liability, as many were unable to reclaim the tax.

7. Rebate options • Option 1 – Unbundled (Clean) share class • 1.5% becomes 0.75% and no rebates • Benefits… • Removes any tax liability • Easy re-registration • Lots of unbundled funds available • Past performance of funds available • No need to build rebate functionality • Considerations… • No ability to discount price below clean Post RDR Unbundled pricing Fund Manager X X 0.75% 1.50% Customer 0.75% £ or % 0.50% Adviser Platform

8. Rebate options • Option 2 – Unbundled (Clean) with rebates • 1.5% becomes 0.75% less 0.10% rebate • Benefits… • Minimises any tax liability • Easy re-registration • Lots of unbundled funds available • Past performance of funds available • Keeps client total cost of ownership low • Considerations… • Need to build rebate functionality as paying via cash account not permitted post 2014 on New Business • Still some rebate, which is taxable, but a taxable rebate is still better than no rebate • Complicated – or just different? Post RDR Unbundled pricing Fund Manager X 0.75% 1.50% X Customer 0.75% 0.10% £ or % 0.50% Adviser Platform

9. Rebate options • Option 3 – Super Clean • 1.5% becomes 0.65% • Benefits • Removes any tax liability • Simple • No need to build rebate functionality • Keeps client total cost of ownership low • Considerations • Reregistration may become harder • A few Super Clean share classes available • Limited past performance when available • Not possible to discount below Super Clean without more share classes Post RDR Unbundled pricing Fund Manager X X 0.65% 1.50% X Super clean Customer 0.85% 0.10% £ or % 0.50% Adviser Platform

10. Fund Groups Segmentation of Platforms? Beasts- >£30bn Big - >£10bn Mid-size - > £5bn Niche - >£500m Distributors are those platforms which have integrated guided lists, select lists, multi-manager funds or other vehicles which guide and concentrate fund manager flows. Facilitators are those platforms which support open architecture and have no proprietary fund management or fund selection capabilities which are integrated with the platform. Source; Platforum

11. Plan of Action • Identity clients impacted by HMRC tax of rebates • When and how to communicate with them • When and how to move them to Unbundled share class • Do you run a Centralised Investment Proposition? Should this be reviewed to avoid the same problems on a bigger scale! • Can your platform assist with reporting of rebates that are taxable? • Clients responsibility (Tax returns) ? • Advisers involvement? • “Cash back deals” end on platform charges discounted on Specific funds ends 2016 • When and how are clients transitioned • Due Diligence on Platforms • Readiness for 2014 (PS13/1 6.1E.9) • How much income is still platform “trail based” (not on-going adviser charging) • 1) Engage and Move them to Adviser Charging before 2016 • 2) Don’t Engage/move them to AC – accept the loss of income Note – Valuation of the business will stop being multiples of Trail, Adviser Charging is the only consideration

12. Client Fund Group Provider/Operator

13. For financial advisers only www.skandia.co.uk Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Skandia provides you with access to its investment platform, known as Skandia Investment Solutions. Within this platform you can open an ISA and Collective Investment Account provided by Skandia MultiFUNDS Limited, and a Collective Retirement Account and Collective Investment Bond provided by Skandia MultiFUNDS Assurance Limited. Skandia Life Assurance Company Limited, Skandia MultiFUNDS Limited and Skandia MultiFUNDS Assurance Limited are registered in England & Wales under numbers 1363932, 1680071 and 4163431 respectively. Registered Office at Skandia House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. All companies are authorised and regulated by the Financial Services Authority with FSA register numbers 110462, 165359 and 207977. VAT number for all above companies is 386 1301 59.