Tech review: Skandia Investment Solutions

AT8’s Mark Loosmore takes a closer look at Skandia’s wrap proposition.

Skandia is one of the big fish: it has about £32bn in assets under management and is one of the few profitable platforms in the market. Its influence in the market is substantial. Indeed, Skandia has just announced that its UK gross sales broke through £6bn in 2010, taking its overall share of the life, pension and investment market to a record high of 7% for the nine months to end September 2010.

First impressions of the software are good: its look and feel is professional and well organised. Its usability, with the exception of a few glitches is also good, with further enhancements planned for release later this year.

The platform has been constructed by Skandia itself (or on its behalf by an outsourced capability), rather than buying in components from third parties. Creating your own customised solution can be a costly and high-risk route, but Skandia has put its money where its mouth is and would appear to have gained several advantages.

A unique solution

First, the solution is unique to Skandia. In reviewing other platforms, we have come up against the same building blocks several times, specifically Distribution Technology’s components and the FundsLibrary. By creating its own solution from scratch, Skandia has a truly differentiated solution. At launch, this could have been interpreted as a risky strategy, and we certainly would not recommend new entrants to do this today.

However, after many years in the market, Skandia has a proven, scalable solution, with its own investment philosophies at its core. Being in control of the full breadth of the solution has also enabled a seamless business process. In addition, there is no change in look and feel or usability as users move from one module to another, which makes a notable difference to other solutions we have reviewed so far.

Breadth of functionality

The platform functionality is split into four core sections:

• Managing clients
  
• Managing business
  
• Writing business
  
• Fund/business tools.
  

The breadth of capability provided by the platform is very wide, so this article will focus on a couple of the fund/business tools. We do this so as not to detract from the other functions that appear well executed. They include:

• set-up and management of the clients
  
• creation of illustrations
  
• submission of new business
  
• switching
  
• pipeline tracking
  
• valuation
  
• transaction histor
  
• a document library
  
• a data downloader to extract data to other systems.
  

The first of the tools to mention is the attitude to risk (ATR) and asset allocation solution. Skandia’s ATR is home grown, so the questions and approach is unique to Skandia. The approach is designed to be run at product level with different questions. Indeed, different numbers of questions are asked according to need.

The end output is a risk rating from 1 to 10, with each risk rating having a published definition and expected volatility measurement. To help the adviser explain this risk, sales aids are provided to show the impact on their portfolio over time.

Once a risk rating is agreed, this number creates an optimised portfolio. There is nothing unusual in this process. However, unlike most of the solutions in the market, Skandia achieves this through deterministic calculations, rather than stochastic methods. The deterministic calculations are based on core assumptions from Towers Watson such as expected returns, expected volatility, taxation and fund charges. But the methodology is programmatically generated by Skandia.

As the FSA is keen to point out, volatility is not a direct correlation to risk and it is encouraging that Skandia includes other risk factors in its calculations. If the adviser or client doesn’t like the re­commended portfolio, they can adjust the investment in the asset classes and then the system will recalculate the unchanged classes to keep the overall volatility of the portfolio at the target level agreed by the ATR process.

Indeed, the Skandia approach is where we are told the deterministic methodology comes into its own. It says to recalculate the portfolios in a stochastic methodology would need considerable processing power because of the wide range of variables against which it would need to be forecast.

However, Skandia recognises that as it moves to provide greater support for ‘at retirement’ solutions there will be a need to provide stochastic models to illustrate the range of possible outcomes over time.

X-raying U-Skan

The second tool we looked at is the U-Skan tool. In essence, this is an ‘x-ray’ tool that can report on portfolios in detail, at the most granular level of the fund. The data is provided by Financial Express, which created the system for Skandia (although it is bespoke to Skandia so stays within the Skandia philosophy of creating its own unique proposition.) Skandia has enjoyed a very positive relationship with Financial Express and sings its praises loud and clear.

Two key reports can be created by U-Skan: one is aimed at the adviser and covers a substantial amount of information including the portfolio holdings (U-Skan reports can also be run on each of the funds held or proposed), split by asset class, region, stock sector and IMA sector. It analyses performance and provides the fund ratings (including OBSR, Crown and Citywire ratings).Each graphic/table in the report is downloadable to include in adviser reports. U-Skan also provides the option to create a client-friendly report, which is less formally laid out and contains less detailed information.

The Skandia platform itself also has a client-friendly access point, which allows the end client to look at their portfolio valuations and to manage switches themselves. New business submission is not supported on the client site. Currently, if an adviser gives access to this site both viewing and switching capabilities are exposed, unlike some other platforms where the functionality exposed to the client can be tailored by adviser or client.

The open approach may scare off some from offering access to the client functionality, as the adviser often understandably wants to stay heavily involved in all the financial trades. However, in many cases the adviser/client relationship is strong enough for the adviser to guide the client not to trade without their involvement. Nevertheless, we would expect these functions to be capable of being tailored by IFA firm, for an adviser and client. There is also no white- labelling capability available for the client site, which we find surprising for such a major player in the market.

The Skandia platform is undoubtedly impressive. As an adviser tool it has a lot in its favour and is one of the most consistent, well thought out solutions we have reviewed. Skandia has not rested on its laurels and has several new releases planned. It also recognises the need to keep its user interface current and has been working closely with their users, both advisers and admin staff to achieve this and to maximise the usability of the solution, something that we think has been lacking is many e-commerce solutions over the years.

We felt that the weakness in its current offering is the client facing version of the solution, but this should not hamper it too much in the short term. However, in the long term a lack of tailoring for customer access may prevent it being the leading platform of choice for some of the more progressive advisers. What Skandia does offer today is an efficient, attractive and flexible adviser-­led solution.