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Home > Investments > Discretionary Management

Standard Life demands equality on management tax

Wealth manager calls for same tax treatment for multi-manager funds and model portfolios.

By Jenna Voigt and Bradley Gerrard | Published Jun 08, 2012 | comments

Standard Life Wealth has said multi-manager funds and discretionary model portfolios should be treated the same in terms of tax.

The two types of investment product perform similar functions, but their charging structures differ.

While multi-manager funds charge investors fees out of the value of their assets, model portfolios have no pool of assets and so charge fees from investors who use them.

A recent opinion statement from European lawmakers – as well as guidance from UK tax body HM Revenue & Customs – looks set to force discretionary managers to charge VAT on all investment services. The move would make model portfolios that do not charge VAT 20 per cent more expensive overnight.

David Tiller, head of strategy and propositions for UK investments at Standard Life Wealth, said: “For tax and contractual purposes they should be dealt with in the same manner.”

He said from an investment point of view there was “not a material difference” between model portfolios and multi-manager funds because the vehicles provided a similar service to a similar set of customers.

He added that customers were too often focused on whether an investment was a multi-manager fund or a model, and pointed out the important thing was performance and the vehicles should be “measured side by side”.

Meanwhile, a survey from Defaqto showed discretionary models were presenting a challenge to multi-manager funds, with 21 per cent of advisers who outsource their investment process using discretionary management and 26 per cent using multi-manager.

Mr Tiller said the inflows into Standard Life’s managed portfolio service and multi-manager funds were “fairly evenly split” between the two.

Oliver Wallin, investment director at Octopus Investments, said both multi-manager and discretionary fund management (DFM) services had been seeing strong inflows, but warned the additional costs carried by models could tip the scale in favour of multi-manager funds.

“Both types of service have been competing for some time but we are moving into an environment where cost is very important and access on a platform is also important,” he said.

“These things will determine how successful one strategy is over another as will how advisers segment their client bank.”

Mr Wallin said post-RDR, the winner between multi-manager and DFM will be the one which can provide “more targeted risk outputs” which will link into the risk profiling tools that advisers use to assess their clients’ tolerance for risk.

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