Afternoon everyone, hope those of you South of the Wall are enjoying queuing for trainers or whatever it is you can do these days. I can’t imagine that when we’re allowed, rheumy-eyed and hesitant, back into the light up here that my first order of business will be standing in a line for homogenised retail experiences but, you know, you do you.

Anyway, we need to talk about VAT, and not the fact that those of us who charge it can defer paying it over to Big Shuggie at HMRC for a while without Shug doing his time-honoured ‘taking the rings from your broken fingers’ routine.

No, what’s caught my eye this week is this little drama around Tatton’s results. They’re very good results, and Tatton seems to be pulling up trees at the moment which is excellent news for them. The drama, though, is that Tatton has secured a HMRC ruling that their DFM MPS service should be VAT-exempt. Hello tiger! That’s very much a turn-up for the books.

Tatton has long charged a below-the-market 0.15% ‘including VAT’, so everyone, including me, has assumed that it’s 0.125% to Mr Hogarth and his shareholders, and 0.025% to Shug. This new ruling means that all fifteen of those lovely basis points stay at home, and Shug is left outside pacing the pavement, looking for some business which doesn’t have to do with the long-term intermediation of retail investment products to smack in the face.

As far as I can see there’s nothing particularly unusual about how Tatton runs its MPS services compared to, say, a Vestra or a Brewin or any other of the 80 or so discretionary MPS propositions out there. But nearly all of those charge VAT on top of their fee, which is typically 0.25% or 0.3%. Now, 6 basis points on your portfolio isn’t the end of the world or anything unless you’re dead rich and that, but when you apply it across the (sometimes) billions that these DFMs look after, we’re talking about quite a lot of money that Shug has been pocketing.

I say ‘nearly’ all charge VAT – the other hold-out I can find is fixed-fee maven Sparrows Capital, who states clearly on its website that its “service is exempt from VAT.” I’m sure there may be others, but that needn’t detain us today.

So the question is – what now? Some folks are getting interested on whether Tatton should be refunding clients their 0.025% which notionally went to cover VAT liabilities. I’m not sure, and even working it out given that DFMs usually don’t know who’s invested in their models would be a job and a half. I’m a bit less interested in that and much more so in terms of what happens now for everyone else. It seems unthinkable that there won’t be a rash of DFMs now challenging their existing practice of VAT charging.

I do know a few DFMs who’ve taken advice from Big 4 firms on this, and to paraphrase, the advice has been “phew, dunno, bit tricky, but how much do you want to take on Big Shug, please can we have our £150k fee now?” So more conservative firms, which is nearly all of them, have erred on the side of caution, given that it’s the client that pays it anyway, not them and advisers recommending DFM MPS seem not to mind too much, which is also probably because it’s the client that pays it and not them.

If this does catch on, it will level the playing field (in terms of price) between unitised multi-asset propositions and DFM MPS services, which is probably a good thing. And of course, lots of clients will see their total cost of ownership drop by five or six basis points, which is definitely a good thing. If you’re using a DFM MPS charging VAT, your next call is to your BDM to ask exactly when the VAT element is being removed, and if not why not.


  • #HomeGames today is very proud to have Kat Mock from Unity Paraplanning on talking DB transfers and replacement business. Going to be a good one. 12.30pm here, or watch later on our shiny new YouTube channel here.
  • Good interview with Andy Bell here. They’ll be putting a statue up soon at this rate, which blokes in (one assumes) ill-fitting sports kit can guard from whatever the platform equivalent of Antifa is.
  • Here’s a cheery story for a change – mentoring on the up according to the PFS. More of this sort of thing.
  • And your music choice this week – we’ve kept it too light for too long, siblings. Please accept this absolute monster of a track from British pagan thrash titans Sabbat’s Dreamweaver. Mythistory will blow your lustrous lockdown tresses right back.

See you next week, which will be the halfway point for 2020 as far as Updates are concerned. Michty.