Aiming for a profitable platform in 2012
Skandia UK has more than £33bn in assets under management (AUM) and strong shareholder backing from Old Mutual, but its goal in 2012 is to make its £19bn platform offering a profitable part of the business.
Nick Dixon, marketing director, Skandia UK, says: “We are trying to break even with the platform this year and hope profits will roar upwards from there. The target is to achieve a return on investment of more than 12 per cent, which is possible. We have a robust business model with positive net client cashflow of £1.8bn in 2011, resulting in an adjusted operating profit of £103bn.
“Unlike more traditional insurance companies, we rarely rely on borrowing. We also have very limited exposure (less than 0.2 per cent) to with-profit and guaranteed products, which greatly reduces solvency risk from market declines. Being a part of Old Mutual, a FTSE 100 listed company, further underpins our financial strength.”
According to Mr Dixon, the UK is a critical growth market for Old Mutual and “they are looking for us to grow quickly, develop new ideas and the emphasis is around how can we develop and expand the business,” he says.
Mr Dixon points out that Skandia has been at the forefront of innovation for at least the past two decades, not only in pioneering multi-manager investing in the UK but also in launching the country’s first fund supermarket in 1994.
“The world of investing is constantly evolving, so we don’t believe in standing still,” says Mr Dixon. “We always try and stay a year or two ahead of the competition. With technology it’s quite easy to copy, so we need to be forward thinking.”
Skandia recently warned clients against blindly following the risk-rated model portfolios offered by discretionary management firms, suggesting that while it offers advisers the ability to host the portfolios, such models run the risk of being inappropriate for client expectations.
With regards to its own Spectrum risk-rated multi-manager range, which is not a discretionary service, Skandia aims to communicate intensively with clients to ensure it is not misunderstood.
Mr Dixon says: “For many years people have been focused on fund performance, which is important, but what really matters for investors is the funds being risk controlled, so they fall in line with expectation and there is something that matches the investor’s appetite for risk, whether it’s high, low or in the middle.
“That’s why we introduced risk-rated funds. We have our own investment process on the Skandia platform. There is a risk questionnaire that advisers can use with their clients to identify their clients’ attitude to risk on a scale of one to 10. They can then come to Skandia to pick the funds. The nice thing about it is advisers can dip in and out and use the bits that suit them – they don’t have to use all of it.”