| Managed Savings Account – By Royal Skandia (Originally published in "International Adviser" March 2008. Reproduced with the kind permission of International Adviser) The Managed Savings Account - Royal Skandia’s offshore savings plan – has been a market leading product in its sector for many years. This article, part of a series of monthly analyses using LifeBase’s product analytical tools, takes a detailed look at the product to see just why it is as successful as it is. Company Royal Skandia was one of the earliest life companies to establish in the Isle of Man in 1985. Following early changes in ownership, culminating with 100% acquisition by Skandia, the company grew very strongly in a settled corporate environment, and extended its international reach. As a result, Royal Skandia (based in Onchan) operates around the world, being strong not just in the UK but also in the Middle East, Far East, Latin America and Scandinavia. Royal Skandia is a top company not just in single premium business but in regular premium business too. Funds under management are around £10 billion. The Skandia Group was acquired in 2006 by Old Mutual plc, the South African insurance group. Old Mutual has a market capitalisation of £8 billion and a primary listing on the London Stock Exchange. Funds The Skandia Group were insurance pioneers of the Multi-Manager approach to investment more than 20 years ago, and the multi-manager concept remains at the core of their product offering and philosophy. Skandia’s entire marketing philosophy has been built upon offering a wide range of funds and fund managers. The fund range remains under active management. For example, during 2007, Royal Skandia added more than 20 new funds to its range. The Royal Skandia investment proposition offers two broad choices. “Self Select” enables investors and/or advisers to choose individual funds and construct a portfolio of funds from the huge list available. Alternatively, advisers can opt for the expertise of Skandia Investment Management to “manage the managers”, and choose from Skandia’s range of Managed Growth Solutions (Cautious, Balanced, Aggressive) and Asset Allocator Solutions. The range of Asset Allocator funds (each available in £, US$, HK$ and €) is:
For Self Select investors and advisers, the range of fund managers to choose from includes:
Using the fund performance tools in LifeBase, we can see that past performance in $ over 5 years (to 31 January 2008) includes high performing funds such as: TABLE 1 – 5-YEAR PERFORMANCE: TOP ROYAL SKANDIA FUNDS
source: LifeBase By comparison, the top 10 performing funds in the offshore life business over the same 5-year period were as shown in Table 2, with Indian and Latin American funds taking the plaudits. TABLE 2 – 5-YEAR PERFORMANCE: ALL FUNDS
source: LifeBase Shortening the time horizon to 1-year, Royal Skandia is well represented on the list of top performing funds. Table 3 shows the leading 10 funds in performance terms ($ 1 year to 31 January 2008). TABLE 3: 1-YEAR PERFORMANCE: ALL FUNDS
Source: LifeBase As ever, some companies take their charges through the funds, whilst others take charges as unit deductions. The figures in Tables 2 and 3 need to be interpreted accordingly. Charges and Design The Managed Savings Account (MSA) eschews the normal “standard and Initial unit” design found in other popular offshore regular premium plans. Instead, the MSA’s sales costs are funded through back-end loads in the form of charges when a policy surrenders early or is made paid-up. These “exit” charges may be slightly higher than for other products, but it does mean that Royal Skandia maturity value projections are correspondingly higher. In effect, discontinuing policyholders subsidise higher maturity values for those policyholders who pay premiums to maturity. Royal Skandia, like its close competitor Friends Provident, supports its regular premium product with “special offer” terms, which have been extended so many times they are now more normal than special. The special offer takes the form of enhanced unit allocations, provided the policy term is 10-15 years and the premium is at least $750 per month. The benefit of the “special offer” is a unit allocation of 107% throughout, which more or less cancels out the 7% bid/offer spread. The design of the MSA, including the special offer terms, is summarised in Table 4 below. TABLE 4 - POLICY CHARGES
source: LifeBase Using LifeBase’s projections suite, it is possible to see how these charges compare against other products when it comes to projected maturity values. Table 4 shows the results for one example – a 15-year savings plan with a premium of $1,000 pm, where projected values are at maturity assuming 7% pa investment return before charges, with external fund charges excluded. Table 5 shows the corresponding effect if fund charges are included. TABLE 4 – PROJECTIONS: EXCLUDING EXTERNAL FUND CHARGES
TABLE 5 – PROJECTIONS: INCLUDING EXTERNAL FUND CHARGES (1.5% pa where applicable)
Care should be taken when interpreting tables 4 and 5 above. The numbers shown are projected values at maturity. The fact is however that few policies will reach this stage and pay premiums throughout. Therefore it is arguably more important to look at the position for surrender values or values where policies are made paid-up part way through. Work undertaken by Boal & Co in this area does tend to show that products with higher maturity values are associated with lower surrender values, and vice versa. It is important for advisers not to lose sight of this fact. Features The MSA has a considerable number of benefit features:
Summary The Managed Savings Account has been a market-leading savings plan for many years. LifeBase’s objective analysis of the product, including:
all provide a clear rationale for the Managed savings Account’s success.
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