10 Dec ‘Tis the season…
Standard Life gave its customers an early Christmas present today, announcing lower fees on the Standard Life Wrap and introducing the Drawdown Price Lock.
The first whittles the number of charging tiers from six to four and reduces charges in each tier. The festive good cheer carries on with the Drawdown Price Lock, which allows clients to freeze the rate of charges throughout retirement until the pension pot is withdrawn completely — a first in the platform market. The changes will apply to all new and existing clients from April 2020.
Good things come in small packages
Standard Life Wrap’s current charging structure is one of the most complicated and expensive charging structures in the platform market. Platform charges are determined by a combination of a client’s product, assets and whether the adviser is an existing (and substantial supporter) of Standard Life Wrap.
The new pricing reduces the number of tiers from six to four, with reductions in charges across all tiers. Broadly it gives all advisers and customers access to better terms than the current best terms publicly available for its large adviser clients. A Sipp that’s under £100k would see charges fall from 0.55% to 0.40% (and 0.35% if the adviser has more than £75m on Standard Life Wrap). It also removes the Sipp charge for advisers who have more than £75m on the platform — a compelling reason for advisers to consolidate clients on one platform.
Standard Life has always pointed to its wide-ranging platform functionality and the service it provides to advisers to justify its high price tag — it’s widely seen as a platform for more complex financial planning. However, the incoming reductions are significant and will remove a barrier for many advisers. For context, charges on Sipps up to £250k on Wrap will be more akin to competitors like Aviva (known for being a lower-cost proposition).
Clients with more than a million in assets can choose to adopt the new tiered charging structure or choose a flat 0.15%. The image below is an extract of a £1m portfolio, £500k in a sipp and the rest in ISAs and general investments. It puts Standard Life’s 15bps flat rate in the top five for fees. Advisers (and other platforms) can head over to Comparetheplatform.com, which has been updated to reflect Standard Life’s present charges and the charges yet to come, to easily compare which will be better for individual clients.
Lockin’ around the Christmas tree
Though the platform price changes are significant, the interesting part of the announcement is the new Drawdown Price Lock. Currently, nearly all platforms operate on some sort of tiered percentage charge structure which decreases as assets grow. This favours clients as they accumulate wealth, but works against them as they start to drawdown, with platform charges rising as the value of their portfolio falls.
Standard Life clients will be able to lock in the lowest fee paid (ie when the portfolio is at its highest value) for the rest of their decumulation life on the platform. As well as doing away with the problems of traditional tiered platform charging, the Drawdown Price Lock makes things simpler and gives pricing peace of mind to adviser and client. This sort of pricing arrangement is unique to the platform market and rewards customers for their loyalty and growing their pension assets with Standard Life. Depicted below is the impact on the lock on portfolios as clients draw on their portfolios.
Wrapping things up
Standard Life’s new charge structure has come as a surprise, but it’s at a good time of the year to get the message out and maximise those 2019/20 tax-year-end flows. As well as new business, it should encourage advisers to consolidate their client business onto one platform.
The Drawdown Price Lock is a welcome and innovative development for clients in decumulation that will please the regulator, clients and advisers alike. This should also help to retain clients who might otherwise look for cheaper drawdown alternatives once they hit retirement.
It also removes the main barrier to new adviser business — the high price tag. These announcements make it more competitive on price while offering the same proposition and service. Like the perfect Christmas lunch, the core proposition remains the same, but the trimmings continue to evolve, and above all, excellent service is maintained throughout.