PlatformMar 29 2017

Income withdrawal: Platforms' pluses and minuses

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Income withdrawal: Platforms' pluses and minuses

By the time you read this, the tax year-end will be all but over and there’ll be little more than 12 months to go until the next one. Something to look forward to, I’m sure you’ll agree.

I’ve always liked the period just after the new tax year starts. We have some (hopefully) good results, the Budget has been and gone (although this year it seems to keep coming back) and we are into the year proper in an odd way.

These periods of slightly greater stability than usual are kind of important when it comes to the technology you use in your practice every day. They allow time for the development and testing of new kit that’s generally been held over from the previous year. The rule of thumb is that:

• The stuff was ready in the first quarter, but we held it back until after tax year end

• We discovered some bugs, but that’s fine because it’s off to get fixed in this lull period

• Oh, that’s over. It’s nearly summer, no point in launching now

• We’ll launch in early autumn, at the same time as everyone else

Congratulations, you are now a financial services IT project manager.

But it’s not always that simple – I was at a pensions event recently where someone suggested that Brexit might lead to a 10-year moratorium on governmental tinkering with pensions. And a few days later, the MPAA cut was confirmed.

 

Income in action 

When it comes to analysis of the stuff that you use, this is a busy time for us at the lang cat. Spring is here, the sap is rising despite our best attempts to get it not to, and providers are keen for us to look in detail at areas they want people to consider.

It’s fitting, then, that it’s a year since we took our last big look at the propositions available to you for withdrawing income from platforms (anyone using the ‘decu****tion’ word gets an atomic wedgie). So we took another look, and it was an interesting experience. For a given value of ‘interesting’, of course.

The first thing to observe is that most platforms have the basics down pretty well now. We found only a couple of big deficiencies (of course, some platforms don’t have an on-platform pension and so escaped a lot of our beady

eye-staring). 

But there is a staggering amount of detail for you to get your heads around even with something as purportedly simple as taking income from a client’s account. On the way through, we identified 58 detailed due diligence questions you could ask, although if you ask them you can’t expect the provider to be your friend any more.

We broke the income market down into these steps:

• Planning for withdrawal

• Getting an initial lump sum

• Taking an additional lump sum

• Setting up a regular income

• Changing the level of regular income

• Investing during withdrawal

• Checking that things are on track

• Ongoing planning

The whole scope of the work is too big to share here – you need to read about why someone’s new fund is really good or whatever on other pages – but most of the things you’d want to be in place across these steps are. For example, all of the 14 providers we looked at allow flexi-access drawdown, and all bar two (Aviva and Nucleus) allow UFPLS. Given both those share Bravura underpinnings (for now), we can surmise that this is probably beyond their control in the short term.

 

Complications

However, when we look at some of the extensions advisers might look for in terms of keeping portfolios optimized, the picture is a little less rosy. Let’s take Bed & Pension for an example – this automated sell-down from one wrapper and re-buy in another is certainly niche, but really matters to those that use it. Six of the 14 offer that facility.

All the platforms we looked at offered model portfolio functionality, but again the detail varies hugely. This is one of those areas where a tick-box in a system (even our system) can’t ever do justice to the complexity involved. There are huge numbers of variables in terms of what makes this area of a platform work, or not. 

One of the more interesting ones is prefunding, where a provider – normally an insurer – puts its balance sheet into play to remove out-of-market time for clients. Some do, some don’t, but most claim it. The most common approach is what we’re christening CTC or compressed trading cycle (catchy), where the provider times switch trades in particular to reduce out-of-market time. This is yet another area where you have to be careful of nuance.

What really bakes our noodles, though, is how poor so many of the platforms are in terms of reporting income and providing tools or experiences for clients to check what’s going on. You might argue this doesn’t matter because the client can simply call the adviser, but you would be wrong.

 

Cashing in

Of our 14 platforms, only two allow consolidated cross-wrapper income to be paid to the client. Now that’s a first-world problem, but even so, it’s 2017 and it shouldn’t be a surprise that people want to withdraw some cash on a regular basis, what with all the baby boomers and everything. More seriously, though, only six providers have alerts for when cash falls to a level that won’t be able to pay out income.

Speaking of cash, by the way, things have generally gone from bad to worse. Now, 11 of our 14 providers levy platform charges on cash, and with rates as low as zero or marginally negative anyway, that’s sour news. 

In our last round of adviser research, we heard that firms generally keep from nine to 24 months’ cash on hand in the platform cash account to ensure that income, fees and charges are covered. It’s now more likely than not that this cash holding will be costing the client money in the short term.

 

Client last?

Our final finding is that the tools a client might reasonably expect to bring them closer to this vital part of their overall wealth are sadly lacking. This is one area where it’s clearly adviser-first, client-last, and it’s a bit depressing to tell you the truth. Only two platforms offer a client app – Elevate and FundsNetwork – and a scant half have a mobile-optimized site. Is it unreasonable to suggest that clients in drawdown might take an active interest in how it’s all working out on a regular basis? Would that be a threat? Should platforms enable this? No, no, and yes are the answers you’re looking for.

So in our nice little time of stability, we’d really like to see platforms move forward in terms of improving the experience for clients – and therefore advisers as well – in the area of income withdrawal. It’s good for everyone, it isn’t dependent on anything much from a regulatory perspective, and it would do wonders to rehabilitate our image a little bit. Not a bad way to face the new tax year.

You can download the new research paper from the lang cat website. It’s called ‘A Sentimental Journey?’ – the question mark is important – and it’s free.

 

Mark Polson is principal of platform and specialist consultancy the lang cat