Alliance Trust Savings ISSUED. 13 September 2013

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1 Alliance Trust Savings ISSUED 13 September 2013

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 AKG's User Guide to AKG's Platform Profile & Financial Strength Reports, a copy of which is available on-line at About AKG AKG is an actuarially based consultancy specialising in the provision of ratings, information and market assistance to the financial services industry. Assistance to Provider Companies AKG assists Providers in: Financial Strength analysis, ratings and presentation, Data and information provision, Actuarial consultancy, Distribution consultancy. Assistance to Financial Intermediaries AKG assists intermediaries in: Financial Strength analysis, Best Advice panel services, Data and information provision, Actuarial and technical support. Regular Reports AKG publishes the following additional reports to assist Providers and Intermediaries: AKG Company Profile & Financial Strength Reports - covering UK long term Insurers/Providers. AKG Offshore Profile & Financial Strength Reports - covering offshore life assurance companies. AKG UK Life Office With Profits Reports - providing further depth in the assessment of with profits funds. AKG Offshore Life Office With Profits Bond Report - providing further depth in the assessment of offshore with profits bonds. For further details, please contact AKG: Tel: +44 (0) or akg@akg.co.uk AKG Actuaries & Consultants Ltd (AKG) 2013 This report is issued as at a certain date, and it remains AKG's current assessment with current ratings until it is superseded by a subsequently issued report or subsequently issued ratings (at which point the newly issued report or ratings should be used), or until AKG ceases to make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. This includes prior regulatory data which may have an earlier date associated with it, but the report also takes into account all relevant events and information, available to and considered by AKG, which have occurred prior to this stated cover and footer date. Events and information subsequent to this date are not covered within it, but AKG continually monitors and reviews such events and information and where individually or in aggregate such events or information give rise to rating revision an updated report under an updated date is issued as soon as possible. All rights reserved. This report is protected by copyright. This report and the data/information contained herein is provided on a single site multi user basis. It may therefore be utilised by a number of individuals within a location. If provided in paper form this may be as part of a physical library arrangement, but copying is prohibited under copyright. If provided in electronic form, this may be by means of a shared server environment, but copying or installation onto more than one computer is prohibited under copyright. Printing from electronic form is permitted for own (single location) use only and multiple printing for onward distribution is prohibited under copyright. Further distribution and uses of the report, either in its entirety or part thereof, may be permitted by separate agreement, under licence. Please contact AKG in this regard or with any questions: akg@akg.co.uk, Tel +44 (0) AKG has made every effort to ensure the accuracy of the content of this report and to ensure that the information contained is as current as possible at the date of issue, but AKG (inclusive of its directors, officers, staff and shareholders and any affiliated third parties) cannot accept any liability to any party in respect of, or resulting from, errors or omissions. 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 Actuaries & Consultants Ltd 13 September 2013

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, a self-managed investment company with investment trust status whose stated objective is 'to be a core investment for investors seeking increasing value over the long term'. Alliance Trust PLC invests in a wide range of asset classes throughout the world to achieve its objective, and return for shareholders is generated by a combination of capital growth and dividend payments. Alliance Trust PLC has a 125 year history as an investment and savings business, and offers investors a portfolio of products and services with a focus on investment in global equities and fixed income, amongst other investments. Its two main trading subsidiaries are ATS and Alliance Trust Investments Limited (ATI), previously known as Alliance Trust Asset Management Limited. Through itself and these subsidiaries Alliance Trust PLC offers a range of investment strategies and funds, and an investment platform where investors can host their ISA, SIPP or investment accounts. ATI is a specialist fund management business 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 2012 it had Assets under Management and Advice of 1.9bn. ATS has historically provided a route for investors to hold shares in Alliance Trust PLC (as a listed share, it is prohibited from directly marketing itself, and so used ATS as a means of distribution). Over the last three years this business has been restructured to establish an investment platform providing services to private investors directly or via an intermediated route. Corporate Structure (simplified) Alliance Trust PLC Alliance Trust Savings Limited Alliance Trust Investments Limited Alliance Trust Savings Nominees Limited (a private company limited by guarantee) Ratings Company Platform Financial Strength Rating Service Supporting Ratings Image & Strategy Annual Review Alliance Trust Savings Limited B AKG Actuaries & Consultants Ltd Page 1 13 September 2013

4 Alliance Trust Savings Alliance Trust Savings Limited Corporate Data Ownership Open to New Business? Alliance Trust PLC Yes Year Established 1986 Head Office Administration Office Website - Consumer Website - IFA Key Personnel 8 West Marketgait Dundee DD1 1QN Tel: as above Chairman (and CEO of Alliance Trust PLC) Financial Director Non-executive Director Managing Director Sales and Marketing Director Proposition and Service Director Company Background K Garrett-Cox A Trotter E Troughton P Mill G Mcluckie E Maddison 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 (known as the i.nvest dealing platform), which was redeveloped and relaunched in 2010 as an investment platform for private clients and advisers, and is referred to more regularly as just 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. The company is regulated by the FCA and PRA; for historic reasons it has certain deposit-taking permissions. Platform Financial Strength There has been significant and continuing investment in the ATS platform in the last few years, and ATS carries total losses of around 34m, as at December Trading and development has been funded by parent Alliance Trust PLC. Now taking a more active role in the intermediated platform space in the UK, ATS offers a 'transparently priced on-line trading platform' alternative in this market. Initially positioning itself as a lead secondary platform choice for advisers, it reports momentum towards fulfilling primary roles. However, there is significant uncertainty in the market still, in terms of economic conditions, and the impact of additional regulation and fiercer competition which, despite its view that it has a unique offering, may restrict ATS's ability to gain ground. Alliance Trust PLC provides subordinated loans of 7.1m which form part of the ATS regulatory capital and have no set repayment or maturity date. In addition, Alliance Trust PLC has confirmed it intends to make working capital available for at least 12 months from the last approved statutory accounts (31 December 2012). B Proposition Overview and Governance The ATS trading platform (named 'i.nvest', although the proposition on the whole is not referred to in this way) allows 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, a range of over 1700 funds and a whole of market range of investment trusts (over 220 accessible). ETFs (Exchange Traded Funds), fixed interest securities and foreign exchange trading (via its in-house dealing desk) are also available. ATS states 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. The ATS Board includes the Alliance Trust PLC CEO, Group Finance Director and ATI's Managing Director as well as the ATS Managing Director. Governance arrangements with subsidiaries were strengthened in 2012 by introducing greater separation of roles and responsibilities of the various boards and committees, with regular reporting of subsidiaries' activities to the main Group Board. 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 31 December 2012 it had net assets of nearly 2.5bn. Group policy is to pay all net revenue earnings as dividends to shareholders, and it has increased that dividend every year for the past 46 years. The largest shareholder in Alliance Trust PLC is the nominee company for ATS (see below) which holds its shares on behalf of over 24,000 clients amounting to 25.6% as at 6 March Technology Provider(s) The platform technology is owned by ATS and has been developed on a proprietary basis by the Group (via central services; there is effectively a ringfenced team of IT resource dedicated to the ATS platform, and ATS is recharged all IT costs used). Responsibility for system and software development rests within the ATS business and primarily within the Platform Proposition team. IT development is coordinated centrally through the Group shared service, and project activity is tracked at ATS Operating Committee level. 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 Actuaries & Consultants Ltd Page 2 13 September 2013

5 Alliance Trust Savings Alliance Trust Savings Limited Key Financial Data (for y/e: 31/12/12) Shareholders' Funds 01/ / / 's 000's 000's Balance b/f Issue of share capital Retained profit/loss for year Balance c/f Total liabilities 11,990 4,200-5,439 11,016 Total assets 274, ,245 11,016 9,700-4,072 17, , ,054 17,127 2, , , ,810 Capital Resources 01/ / / 's 000's 000's Available capital resources CRR 14,351 5,341 23,745 9,762 24,952 9,467 Excess capital resources 9,010 13,983 15,485 CRR Coverage Ratios 01/ / /2012 % % % CRR coverage ratio Profit 01/ / / 's 000's 000's Turnover/revenue Expenses Profit/loss before tax Tax 12,763 18,209-5,446 Profit/loss after tax -5,439 Dividends ,205 15,352-3, , ,760 15, Retained profit/loss -5,439-4, Cash Flow 01/ / / 's 000's 000's Operating activities Return on investment etc Tax Capital expenditure Acquisitions/disposals Equity dividends paid M'gm't of liquid resources Financing -4,355-2, ,184 39,048 37,455 7,800 13,200 2,000 Increase in cash 35,629 49,453 39,018 Significant investment has continued to be directed into developing and establishing the ATS platform proposition, and the financial profile illustrates this with the losses of 5.4m in the year to January 2011, and 4.1m in the next 11 months (year end changed to December 2011). The latest year to December 2012 saw a significant improvement, with the loss reduced to 0.4m, and ATS reported a profit of 200k in H Revenue increased in 2012, and was made up partly from stable interest income, with non-interest income driven by higher customer and dealing figures, and increased platform / dealing charges. For 2012, these revenue and expense figures are reported on a split of continuing and discontinuing operations, reflecting the sale of the SSAS and SIPP businesses, and analysis of the underlying continuing operations shows the retained business had a higher loss ( 0.44m) on lower revenue ( 9.6m) of which interest income was a significant part (27%) - although this was less than in the previous year (38%) and is expected to be a diminishing part of the growing business. Development expenditure has been funded by a series of capital injections ( 4.2m in 2012, 9.7m and 2m in the preceding periods) and running losses (from the Profit & Loss account) now total 33.9m. Alliance Trust PLC has ultimately invested 52.8m in ATS by way of share capital and 7.1m in subordinated loans, and due predominantly to the latest new equity provided, the balance sheet Net Assets (Shareholders' Funds) increased to 18.9m as at December 2012 from 17.1m in December There remains a significant underlying base of costs, where ATS calls on Group central services to provide a number of support functions including IT, Change, HR, Finance, Compliance, Audit and Risk, and where the key component is staff costs. The recharged staff costs to ATS were relatively stable in 2012 compared to 2011, and the average number of staff fell from 175 to 164. The ATS cashflow figures have been provided by the company and show a solid inflow of depositors' cash, and parental support. For the year ending December 2012, Alliance Trust PLC reported total revenue of 325m upon which it made profit (before tax) of 254m. Total Equity (Net Assets) increased slightly to 2.49bn [Dec 2011: 2.4bn]. In terms of capital adequacy, ATS has provided the Group ICAAP (Internal Capital Adequacy Assessment Process) document, and Pillar 3 disclosure, both as at June 2012, plus the ATS capital resources information for December year ends for the last 3 years. Alliance Trust PLC is not itself regulated but is required to be assessed along with ATS and other regulated group companies (UK consolidation group). As a group, Available Capital Resources totalled 2.3bn against a Capital Resources Requirement (CRR) of 0.5bn, with coverage of over 450% therefore, on a pillar 1 basis. In isolation, ATS stated total regulatory capital of 25m, including 7.1m tier 2 (subordinated debt from parent) as at end December 2012, providing CRR coverage of 263% which has been fairly stable across the last three years. Its Core tier 1 capital ratio was stated separately as 23% at the end of June Alliance Trust PLC has shown strong support to ATS in financial terms through capital injections and provision of the subordinated loans which form part of ATS' regulatory capital. AKG Actuaries & Consultants Ltd Page 3 13 September 2013

6 Alliance Trust Savings Distribution Method The platform is available for use by both direct and intermediated customers. ATS believes that its expertise in the Direct to Consumer market, together with the impact of the RDR, will be key in developing further opportunities to increase market share and revenue in the intermediated channel. As at December 2012, the intermediary channel represented around 10% of new ATS business inflows, but in Q this had risen to around 50% and intermediary business is now a key focus. Key Relationships Currently a wide range of direct and intermediated customers use the platform, with over 65,000 retail investors in May It has built relationships with regional intermediaries but not yet developed those with national intermediary firms or networks. In this respect, it has recently bolstered its sales teams (by eight Business Development Managers) with an aim to develop such relationships. Image and Strategy ATS has changed its strategy recently, disposing of its SIPP / SSAS business to allow focus on the platform proposition. ATS' perception was that this 'de-risked' the business, and would allow it to develop the strongest part of its proposition, the platform, for the direct and intermediary markets in which it expected to see significant growth post-rdr. The platform business provides 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. It has taken a lead position in promoting clean share classes and was the first UK platform to offer fully clean funds for new business, from 1 January In terms of the intermediary proposition, ATS initially saw opportunities from the platform proposition being used alongside existing platforms but it has extended its strategy from being seen as a leading secondary platform into taking a primary role, given opportunities and demand from intermediaries to date. It continues to automate and simplify the proposition, with an aim to keep a simple approach to provide administration for those intermediaries in managing their clients' accounts. Key performance indicators will be customer account numbers and trading volumes, it states. ATS is relying in part on 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. Having undertaken its own research, Alliance Trust PLC concluded that it is viewed as independent and solid, but at the same time rather old-fashioned and dull by some standards. In recognising this, it has presented a new logo and re-branding which will become common across the various Alliance Trust businesses. Some reference to historic names for the Alliance Trust platform persists (i.e. 'i.nvest'), but this inconsistency does not seem to be causing any confusion to intermediaries and is being addressed by ATS in any case. 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 won a number of service awards on the D2C side during the 2012 year, including 'Best Direct User Experience' by The Platforum and 'Best Customer Experience' from Shares Awards. The increase in AuA on the intermediary side seems to provide an illustration that good service levels are attracting new business. 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 01/ / / 's 000's 000's Assets b/f Inflows Outflows 3,200,686 3,340,739 Assets c/f 3,200,686 3,340,739 4,050,841 Growth Rate 4.4% 21.3% Expense Ratio (%) 0.5 % 0.4% The Assets under Administration (AuA) figures above relate to total assets (B2C and intermediary) on the platform, and excludes the SSAS/SIPP businesses disposed of recently. Underlying significant growth was seen in 2012; the number of customer accounts increased from 70,186 in December 2011 to 74,231 in December 2012, and by May 2013 had risen to over 77,000. The number of trades per annum also increased. As at April 2013, ATS reported AuA of 4.7bn, indicating further good progress had been made in 2013 thus far, with particular growth in advised assets, which were up 52% in the year to April Given the number of accounts and direct business undertaken, the gross inflows and outflows of stock and cash are quite large, but each reported period has seen a significant positive net inflow. Annual Review The sale of its Full SIPP and SSAS pensions businesses in the last 12 months was undertaken to allow ATS to complete its transformation into a simplified operation with a focus on its platform business, to take advantage of perceived opportunities in the new regulatory environment following the Retail Distribution Review (RDR). The sale of the Full SIPP business was a significant step and had the potential to impact on the ATS brand, although there does not seem to have been any adverse effects for either side of the changed ownership currently. AKG Actuaries & Consultants Ltd Page 4 13 September 2013

7 AKG Actuaries & Consultants Ltd 13 September 2013

8 Guide to AKG Ratings Financial Strength Ratings - Introduction AKG is an actuarially based organisation specialising in the provision of ratings, information and consultancy to the financial services industry. An independent company, AKG has provided detailed expert financial strength assessments (including ratings) and data to the UK financial services sector for over 15 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 Actuaries & Consultants Ltd 13 September 2013

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 Actuaries & Consultants Ltd 13 September 2013

10 AKG Actuaries & Consultants Ltd Anderton House, 92 South Street Dorking, Surrey RH4 2EW Tel No: +44 (0) Fax No: +44 (0) AKG is an actuarially based consultancy specialising in the provision of ratings, information and market assistance to the financial services industry AKG Actuaries & Consultants Ltd 2013