Alliance Trust Savings ISSUED. 13 June 2016

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1 Alliance Trust Savings ISSUED 13 June 2016

2 Introduction Background AKG's Platform Profile & Financial Strength Reports are designed to meet the information needs of advisers in assessing the relative strengths of Platform Providers. Two different styles of report are published by AKG - FULL reports and SHORT reports. A FULL report is produced for each of the leading provider companies in the market, which participate in the production of the reports. For each remaining provider company which is covered, a SHORT report is produced. This is a FULL report. Each report collates relevant information from a range of sources such as a company s regulatory returns, its Report & Accounts and material provided by the companies themselves, and incorporates expert independent assessment. For FULL report companies the process is augmented by regular meetings and other communications with AKG. PLEASE NOTE: This report should be read in conjunction with the supporting explanatory information which is available online at About AKG AKG is an independent organisation. Originally established as an actuarial consultancy AKG has, for over 20 years, specialised in the provision of assessment, ratings, information and market assistance to the financial services industry. As the market has evolved over this period, the range of entities considered by AKG has expanded. Consequently AKG has brought additional skill sets into its operations. This has meant the inclusion of accounting, corporate finance, IT and market intelligence experience, alongside actuarial resources, to deliver an expanded professional capability. Today AKG s core purpose is in the provision of financial analysis and review services and in the delivery of key value added financial information to support the wider financial services sector and its customers. Regular Reports AKG publishes the following additional reports to assist Providers and Intermediaries: AKG Company Profile & Financial Strength Reports - covering onshore UK life companies, friendly societies and similar providers. AKG Offshore Profile & Financial Strength Reports - covering offshore life companies. AKG UK Life Office With Profits Reports - providing further depth in the assessment of with profits funds. For further details, please contact AKG: Tel: +44 (0) or akg@akg.co.uk AKG Financial Analytics Ltd (AKG) 2016 This report is issued as at a certain date, and it remains AKG's current assessment with current ratings until it is superseded by a subsequently issued report or subsequently issued ratings (at which point the newly issued report or ratings should be used), or until AKG ceases to make such a report or ratings available. The report contains assessment based on available information at the date as shown on the report s cover and in its page footer. 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AKG information, comments and opinion, as expressed in the form of its analysis and ratings, do not establish or seek to establish suitability in any individual regard and AKG does not provide, explicitly or implicitly, through this report and its content, or any other assessment, rating or commentary, any form of investment advice or fiduciary service. AKG Financial Analytics Ltd 13 June 2016

3 Alliance Trust Savings Index Main Company Alliance Trust Savings Limited Page General Information Distribution Service Assets under Administration Annual Review Page Group Overview Alliance Trust Savings Limited (ATS) provides the Alliance Trust Savings investment platform for advisers and private clients. It is a subsidiary of Alliance Trust PLC (ATPLC; the Trust), a self-managed business with investment trust status which has a 126 year history. It is focused on investment in global equities and fixed income, with return for its shareholders generated from a combination of capital growth and dividend payments (group policy is to pay all net revenue earnings as dividends and it has increased the paid dividend every year for the past 49 years). During 2014 and 2015, the Trust came under significant pressure from shareholder Elliott Advisors, the UK arm of New York-based Elliott Management, which criticised ATPLC's poor investment performance, high cost base and loss-making subsidiaries. Wide ranging changes in the business were made to address this, including significant change to the Trust board and chair, and a more formal separation of the management of the subsidiary companies. The main trading subsidiaries are ATS and Alliance Trust Investments Limited (ATI). ATS has historically provided a route for investors to hold shares in ATPLC and over the last three years has been restructured to establish an investment platform providing services to private investors directly or via an intermediated route, hosting ISA, SIPP or investment accounts. As at 30 December 2015, ATS reported Assets under Administration (AuA) of around 8.5bn (including assets acquired from the acquisition Stocktrade acquisition). ATI is a specialist fund management business (Alternative Investment Fund Manager, AIFM) which launched its first fund in 2009, and offers a range of open-ended funds and investment solutions. In 2012 it integrated an investment team it acquired from Aviva Investors and the 1.2bn portfolio of funds that team managed. As at 31 December 2015, ATI had Assets under Management or Advice (AuMA) of 2.1bn. Following ATI s formal appointment as the Investment Manager (IM) and AIFM for Alliance Trust PLC in February 2016, also replacing The Bank of New York Mellon, AuMA now stands at around 5bn. ATS and ATI became standalone businesses within the group with their own management and independent boards in ATI was appointed formally as the IM and AIFM to the Trust, and ATS supported its independent stance with board changes via executive team appointments in early At the end of May 2016, ATPLC was approached by RIT Capital Partners with a view to discussions about a possible combination of the two trust operations; RIT subsequently withdrew this informal proposal. Corporate Structure (simplified) Alliance Trust PLC Alliance Trust Savings Limited Alliance Trust Investments Limited Alliance Trust Savings Nominees Limited Ratings Company Platform Financial Strength Rating Service Supporting Ratings Image & Strategy Annual Review Alliance Trust Savings Limited B AKG Financial Analytics Ltd Page 1 13 June 2016

4 Alliance Trust Savings Alliance Trust Savings Limited Corporate Data Ownership Year Established 1986 Head Office Website Key Personnel Chairman CEO Non-Executive Director Non-Executive Director Finance Director Risk & Compliance Director Sales Director HR Director Operations Director IT & Change Director Alliance Trust plc 8 West Marketgait Dundee DD1 1QN Tel: T Tookey P Mill J Anderson G Stewart A Cairns P Docherty E Carey L Rogers C Munro S Michie Company Background ATS was formed in Scotland in 1986, to offer private investors a route into investment opportunities offered by Alliance Trust PLC (including reinvestment of dividends paid by the Trust, and investment in Personal Equity Plans when launched). ATS was historically known as a savings platform for ISAs and PEPs in the UK, although in recent years it has operated as a SIPP provider. It also provided an investment dealing platform which was redeveloped and relaunched in 2010 as an investment platform for private clients and advisers, now known as the Alliance Trust Savings platform. Since then, ATS has restructured to focus on the platform, disposing of its SSAS business in 2012, and its Full SIPP business early in ATS does not offer advice to its customers; it states its online services provide information and guidance to help them make informed investment decisions. ATS is regulated by the FCA and PRA; for historic reasons it had deposit-taking permissions which carried increased regulatory requirements, and it has abandoned original plans to drop this and has now retained it for strategic use, to differentiate from other platforms. Platform Financial Strength B Now taking a significantly more active role in the intermediated platform space in the UK, ATS offers a 'transparently priced on-line trading platform' alternative in this market. There has been significant and continuing investment in the platform in the last few years and ATS carried total losses of around 34m as at December 2014, with trading and development costs funded by parent Alliance Trust PLC - the Trust has provided all the equity plus subordinated loans of 7.1m. In its year end 2015 accounts, ATPLC states that this loan has been converted to equity and provided 30m of additional capital to ATS. So despite the increased losses posted in ATS, and discord amongst the shareholders of the Trust in the last few years, the platform has remained a core component of the Alliance Trust group and one it that it seems willing to continue to support, albeit more clearly on an investment basis now to satisfy shareholder requirements. Proposition Overview and Governance The ATS platform allows private individuals, intermediaries and other corporate partners access to a range of investment and savings opportunities via a single portal. Access and help is available on-line, or by phone or mail. Investments can be held within an ISA or SIPP, or within an Investment Dealing Account. Investments can also be managed on behalf of minors through its Child SIPP or First Steps Account. It is a self-select platform, as ATS does not provide investment advice, but access to research and other support materials is available. It offers UK and international listed equities, over 4,000 funds and a wide range of investment trusts. ETFs (Exchange Traded Funds), fixed interest securities and foreign exchange trading (via its in-house dealing desk) are also available. ATS claims a leading market position in terms of offering clean share classes. In terms of business governance, ATS is part of a FTSE listed group and the corporate disciplines extend to ATS, with a governance framework consisting of operational and management committees (risk, compliance, legal and finance), along with group internal audit procedures. As a result of shareholder pressure at the Trust level, much greater independence of the subsidiaries now exists - the ATS Board for instance used to include the ATPLC CEO and Group Finance Director but representation is now via a single nonexecutive board member from ATPLC. A separate ATS Executive Committee is in place from 2016, and the same over-riding principles for risk governance remain in place. Ownership (Parent) Alliance Trust PLC is a FTSE listed investment trust company, describing itself as the UK s largest generalist investment trust by market value listed on the London Stock Exchange. As at 30 December 2015 ATPLC had net balance sheet assets (Total Equity) of 2.95bn. The largest shareholder in ATPLC is the nominee company for ATS (see below) with the holding reported at 25.4% (10 June 2016) representing shares held on behalf of over 24,000 clients. Elliott Int LLP & Liverpool Ltd is reported with a 10.2% shareholding at that date. Technology Provider(s) Significant investment has continued to be made in platform technology, with development by ATS on a proprietary basis until the end of From 2015 the technology has been outsourced, with ATS migrating to GBST Holding Ltd's (GBST) Composer technology. GBST is well established as a provider of wealth administration software and powers various adviser platforms including Novia, Aegon Retirement Choices and AJ Bell. It is listed on the Australian Stock Exchange and in its last half year to December 2015 reports revenue of Aus$56.7m and PBT 2.2m after 2.5m of restructuring / nonoperating expenses. Wrapper Provider(s) ATS is the provider of all wrapper products available on the platform. Custodian/Nominee(s) Alliance Trust Savings Nominees Limited (ATSN) acts as primary nominee for investments (ATSN is a private company limited by guarantee and the guarantor / sole member of ATSN is ATS). Other nominees can be appointed by ATS upon instruction by a client. Other None AKG Financial Analytics Ltd Page 2 13 June 2016

5 Alliance Trust Savings Alliance Trust Savings Limited Key Financial Data (for y/e: 31/12/14) Shareholder Funds 's 000's 000's Shareholder Funds b/f Changes in share capital Retained profit/loss for year Other 17,127 18,851 2, ,577 3, ,790-3, Shareholder Funds c/f 18,851 22,577 21,934 Total assets 359, , ,406 Current liabilities Long term liabilities Total assets less liabilities 333,710 7,100 18, ,626 7,100 22, ,411 17,061 21,934 Capital Resources 's 000's 000's Available capital resources CRR 24,952 9,467 Excess capital resources 15,485 CRR Coverage Ratio 2012 CRR coverage ratio % % % Profit & Loss 's 000's 000's Turnover/Revenue Expenses 14,763 11,191 12,922 15,157 14,060 16,141 PBIT (Profit/Loss before interest & tax) ,790-3,743 Interest Paid 0 0 PBT (Profit/Loss before tax) ,790-3,743 Tax 0 0 PAT (Profit/Loss after tax) ,790 Dividends 0 0-3,743 Retained Profit/Loss ,790-3,743 EBITDA 101-2,486-2,766 Financial Ratios Operating margin Pre-tax profit margin EBITDA margin Current ratio Gearing -2.7% -2.7% 0.7% 1.1x 37.7% -25.7% 33.9% -22.2% 1.1x 31.4% -24.9% -29.0% -21.4% 0.0x 110.2% The latest audited accounts for ATS, to December 2014, show that within the continuing business (excluding any residual SIPP business items), AuA increased from 5.4bn to 6.4bn, and trading volumes also increased, with revenue up to 12.8m from 10.9m. The impact of interest income continued to diminish (it represented 38% of total revenue in 2011 but in 2015 was just 15%) although it grew terms in quantum terms to 1.9m [2013: 1.8m]. Non-interest income (predominantly charges on savings and pension plans) increased more significantly, driven by higher customer and dealing figures. Administration expenses rose to 12.6m [2013: 10.5m], with staff costs increasing to 6.1m [ 5.1m] as average FTE staff in ATS increased to 148 from 112. There were significant ( 3.5m in total) non-recurring costs relating to RDR expenses, marketing outsourcing and regulatory project costs. The regulatory project costs relate to a 0.9m impairment incurred in withdrawing from a planned move to the Client Money Regime and retaining the banking licence instead. In the discontinued business, income was largely insignificant at 83k, but 0.5m of costs in relation to Full SIPP customer claims was reported. After all these costs, the statutory accounts recorded an ATS pre-tax loss of 3.7m (against a pre-tax profit of 3.8m in 2013 which included the 6.7m gain on the sale of the SIPP business). Within the continuing business in 2014, the pre-tax loss was 3.3m, or 0.2m profit before non-recurring costs. The loss increased the P&L deficit on the Balance Sheet to 33.9m [2013: 30.3m] and 3m of new capital was introduced, with Shareholders' Funds reducing slightly to 21.9m from 22.6m after a small net credit on the Group Long Term Incentive Plans. ATS produced a cashflow statement which showed an inflow of 69m, mainly influenced by changes in debtors and creditor balances [2013: 49.7m inflow). Further IT spend was directed into developing the ATS platform proposition, with migration to GBST systems, and fixed asset expenditure of 3.8m was noted within the accounts on Technology Development Costs and Computer Equipment; the company expected further investment during 2015 and ATS development expenditure has historically been funded by parent ATPLC and the cumulative capital investment in the company increased to 55.8m at the 2014 year end. For the same period, ATPLC reported total revenue of 274m [2013: 519m restated] upon which it made profit (before tax) of 229m [ 463m]. Total Equity (Net Assets) remained at 2.9bn. The Trust also secured a significant long-term, fixedrate borrowing line, which it stated would give it certainty for a large part of its borrowing requirements up to ATPLC has since produced its December 2015 year end accounts which show revenue has fallen to 200m and PBT to 145m, with Net Assets maintained at 29bn and the dividend increased for the 49th year, by 0.4%. A summary of ATS performance shows revenue up to 13.7m but losses increased to 5.2m, which included a 2.2m provision in respect of the sold SIPP business. A capital injection from ATPLC of 30m was noted together with a conversion of 7.1m subordinated debt to equity, strengthening the ATS balance sheet. ATS is regulated as a bank; whilst the PLC is not itself regulated, it is assessed along with ATS and other regulated group companies as a UK consolidation group. An ICAAP is prepared but not shared publicly and the latest disclosure for ATPLC was at December 2013 year end. This showed total capital of 2.87bn against a capital requirement of 1.74bn, coverage of 165%. AKG Financial Analytics Ltd Page 3 13 June 2016

6 Alliance Trust Savings Distribution Method The platform is available for use by both direct and intermediated customers. The D2C channel still represents the majority of existing business but ATS is looking to build the Intermediary business and develop more corporate relationships (Partnerships) following the Stocktrade acquisition in Key Relationships A wide range of direct and intermediated customers use the platform, with over 71,000 customer accounts as at end December 2014, albeit this was down by 5% on the previous year. ATS has built relationships with regional intermediaries and targets national intermediary firms or networks. In this respect, it has continued to develop its sales team and recently appointed a new Sales Director with experience from a specialist pensions provider and an investment platform, to continue the development of these relationships. The Stocktrade acquisition brought in a number of additional, significant, corporate partnerships. Image and Strategy In 2013 ATPLC presented its Vision 2020 strategy towards an aim of becoming "the UK s most trusted investment and savings business". ATS has refined its strategy since then, disposing of its SIPP / SSAS businesses in 2013 and The platform operation continues to provide a 'simple product range' with further differentiation through transparency of charging and 'unique' (in the intermediary space) flat fee approach, rather than on a percentage basis. ATS leverages its association with the Alliance Trust name and longevity of the group's operations in financial services in the UK to support the development of new business. Whilst recognising some shortcomings in this 'traditional' name, the Trust has retained and modernised the branding across the various Alliance Trust businesses. Ongoing promotion of the Alliance Trust brand supports the platform in both its direct customer and intermediary reach and recognition although in governance terms ATS now has an independent outlook, partly due to the pressure from shareholder Elliott Advisers. Since 2014, Elliott had pushed for significant changes in the business management and direction, to improve investment performance, and this resulted in significant press coverage and some negative reporting of the Trust in 2015, and ultimately to significant board and structure changes. ATPLC communicated an ongoing strategic review in October 2015 encompassing a 'broad range of potential courses of action', and appointed specialist advisers in 2016 to continue the process of development. ATS targets three distribution channels and given an established D2C customer base (which needs to be retained and grown) the targeted growth areas are Intermediaries and Partnerships. A certain proportion of Partnership relationships are in place due to the acquisition of Stocktrade, and there is a focus on growing distribution through the Intermediary channel. In an extremely competitive intermediary platform market this team needs to meet its business development targets which will include broadening its regional reach beyond Scotland, and the technological and propositional developments will need to happen so that ATS can establish a competitive market position and provide the enhanced sales team with good reason to target new Intermediary business. Service Focus is very much on a transparent and simplified proposition (fixed fee structure), with a strategy to continue to automate the proposition whilst providing a range of investment solutions and products. ATS has won a number of service awards, mainly in the D2C market including in 2015 the Best SIPP Provider in the Shares Awards, and a 'Highly Commended' in the Best Low-Cost SIPP provider category of the Moneywise Pension Awards. This followed various awards and recommendations in the Money Observer Pensions Awards in 2014 as well as 'Best Customer Service' category winner in the Shares Awards. Servicing is undertaken in Dundee, where the Group believes expertise can be more effectively concentrated to keep service levels high and maintain a reasonable cost base. A pool of labour is beginning to build around the area, given several other large financial services businesses have sizeable operations in the area. There is also an office in London, dealing predominantly with ATI. Assets under Administration Assets under Administration Assets b/f Inflows Outflows 's 3,340, 's 4,050, 's 5,400,000 Assets c/f 4,050,841 5,400,000 6,400,000 Growth Rate 21.3% 33.3% 18.5% Expense Ratio (%) 0.4 % 0.3 % 0.3% The AuA figures above relate to total assets (B2C and intermediary) on the platform, and exclude the SSAS/SIPP businesses disposed of in 2013/2014. As at 30 December 2015 ATS reported AuA of 7.2bn, before the addition of any Stocktrade AuA. Annual Review The sale of its Full SIPP and SSAS pensions businesses was undertaken in 2013 and whilst some residual costs remained through 2014 and 2015 this strategy has allowed ATS to complete its transformation into a simplified, scalable operation with a focus on its platform business. Agreement for significant systems investment (an outsource agreement with GBST) from ATPLC represented a major step, positioning the business for its future development. Profitability in the year ending December 2014 was less than had been anticipated due in part to competitor activity and also because of the uncertainties surrounding Scottish independence. Focus has since turned to perceived opportunities in the new regulatory environment following the RDR, and as part of the wider strategic positioning of the Alliance Trust group ATS now operates independently from the Trust, managed by a distinct board of directors. In May 2015, ATS contracted to acquire Stocktrade from Brewin Dolphin, to accelerate its growth in its execution only telephone and online dealing services. This brought in an additional 4.3bn of AuA across around 30k customers in total, increasing ATS' scale significantly. ATS migrated 14,000 retail customers (nearly 9,000 new accounts and over 5,000 certificated trading accounts) from Stocktrade onto the ATS platform in 2015 and confirmed that it had completed the integration in full with the transfer of corporate clients in the first half of 2016 so all assets and revenue are now included within ATS. AKG Financial Analytics Ltd Page 4 13 June 2016

7 AKG Financial Analytics Ltd 13 June 2016

8 Guide to AKG Ratings Financial Strength Ratings - Introduction AKG is an independent organisation which has provided detailed expert financial strength assessments (including ratings) and data to the UK financial services sector for over 20 years. AKG s analysis draws on publicly available information, supplemented by other detailed information made available to AKG directly by providers. Traditionally AKG s focus has been predominantly on life companies. However, in light of the growing impact of other entities Platforms and the transformation that this is bringing to the financial services market in the UK, there is an increasing demand from intermediaries in particular to widen the scope of entities that receive specialist AKG assessment. Overall, the aim of AKG s assessments is to provide independently evaluated information to assist in the choice of provider by the intermediary as well as to help in the understanding and appropriate development of the market. In line with its core focus, AKG s assessment is primarily focussed on financial strength. AKG considers that a major consideration for an intermediary in considering a Platform provider is the comfort and assurance that can be obtained from an independent, external assessment. It is an important component in seeking to avoid the operational complications and potential brand damage that would be incurred should a chosen Platform proposition encounter any financial difficulties, suffer a restriction on necessary investment to deliver required evolving functionality, or in some other way fail. AKG assesses financial strength using consistent methodology and objective measures wherever possible, and the detailed analysis of the company s particular strengths and weaknesses. The objectives and criteria for the Platform financial strength rating are summarised below. Platform Financial Strength Rating The objective is to provide a simple broad-brush indication of the financial strength of a Platform operator company. Platform operations are assessed in relative terms within a specific peer group of such entities. By design, and consistent with the very different nature of these entities, the rating is not comparable with other AKG ratings, such as those available for Life companies in AKG s Company Profile & Financial Strength Reports or Offshore Profile & Financial Strength Reports. Key to assessment is a company s ability to survive in its current form or an improved form for the long term to deliver on a user s reasonable expectations of experience. This will include expectations of service delivery and continued maintenance of appropriate infrastructure to deliver this. The following listing outlines primary elements (criteria) considered within this process, where relevant: Strategic appraisal Objectives Distribution Focus Process Competitive Position Company Structure and its fit with strategy Performance against stated strategy - Current and Past Risks and Risk Controls - Strategic, Market and Business Risks Financial appraisal Company Structure Capital Structure Use of Capital/Capital Availability Solvency Levels Expenses Business Mix Margins Customer Focus (TCF) Risk Tolerance Risks and Risk Controls A B+ B B- C D Superior Very strong Strong Satisfactory Weak Very Weak AKG Financial Analytics Ltd 13 June 2016

9 Guide to AKG Ratings (continued) Platform Financial Strength Rating (continued) Operational Appraisal Company Structure Management Servicing/Administration Management of/coordination with Independent Companies eg. Outsourcing Customer Focus Risk Control - Operational Risks, including Business Continuity Analysis of the Group and other entities Group Structure Where and how does the company fit in? Why? Is it core? Financial Support - Past, Present and in the Future Capital Availability to Company Relevant Other Entities - Collaborative, e.g. Technology providers Servicing/Administration providers Counterparties Process Distributors Note: Whilst account is taken of the relationship with Wrapper providers offered through any Platform, including issues of reputational risk, intermediaries and others should also look through to AKG s detailed work in respect of any of these. See: AKG Company Profile & Financial Strength Reports AKG Offshore Profile & Financial Strength Reports The Platform Financial Strength Rating should therefore not be taken as a proxy for any Life company rating in the context of Wrapper use, where separate consideration must apply. Supporting Ratings - Introduction Supporting ratings, assessed at the brand level, are provided only in full reports. AKG assesses three key supporting areas, using consistent methodology and objective measures wherever possible. The aim is to assist IFAs and others to consider the relative merits of the brands that they deal with. AKG's objectives and criteria for each of these ratings are summarised below: Service Rating The objective is to assess the quality of the organisation's service to the intermediary market in respect of the brand concerned. Criteria taken into account include: performance in surveys, awards and benchmarking exercises (external and internal), the organisation's philosophy, service charters, the extent of investments designed to improve service, and feedback from intermediaries. Image and Strategy Rating The objective is to assess the effectiveness of the means by which the organisation currently positions itself to distribute its products for the brand concerned and the plans it has to maintain and/or develop its position. Criteria taken into account include: overall trends in the company s market share position, brand visibility and reputation, feedback from intermediaries and industry commentators, and AKG s view of the company s general strategy. Annual Review Rating This is an end of year view for the last year for which Report and Accounts, Pillar III disclosure, etc., are available, together with comment on any significant post-balance sheet events. It is an assessment of how the brand has fared against its peers, and how it is perceived externally. Criteria taken into account include: increase/decrease in market shares, expense containment, publicity - good or bad, press or market commentary, regulatory fines, and competitive position. Excellent Very good Good Adequate Poor Not rated Excellent Very good Good Adequate Poor Not rated Excellent Very good Good Adequate Poor Not rated AKG Financial Analytics Ltd 13 June 2016

10 AKG Financial Analytics Ltd Anderton House, 92 South Street Dorking, Surrey RH4 2EW Tel No: +44 (0) Fax No: +44 (0) AKG is an independent organisation specialising in the provision of assessment, ratings, information and consultancy to the financial services industry AKG Financial Analytics Ltd 2016