23rd August 2013

The Lang Cat's Second Guide to Platform Pricing

We welcome for the first time ‘the lang Cat’ to our Bento commentary spot today to air some of the findings from “the lang cat’s second Guide to Platform Pricing”.

Over to you Mark:

Anyway, in the Guide we look at 26 platform GIA/ISA propositions and 23 on-platform SIPP propositions across 10 portfolio points, using our special ‘squishing’ technique which tries to flatten out the landscape as much as possible and allow you to see a clear, basic, baselined overview of the marketplace and where providers sit.

A few findings – in the 12 months since our last Guide there have been 10 major proposition changes by platform providers. All but one of those have been price cuts, or new propositions launched with aggressive pricing. The trend in this market remains firmly downwards – this despite advisers routinely saying that price isn’t the main thing, service is, and that clients don’t care anyway.

We’re not so sure. Firstly, it seems clear to us that the FCA still view price as a key indicator of suitability. Let’s take an example. For a £50k ISA you could pay 0.25% with Aviva, or 1.92% with James Hay (minimum fee of £384pa). Now, James Hay would say, rightly, that it’s unsuitable for small investors, and so would the FCA. And no sensible adviser would go there. But there are huge differences and outliers – care is always required.

Let’s take a more core example. Standard Life Wrap’s Wrap SIPP costs 60bps for a £100k pot (before any discounts). Elevate’s SIPP is 32bps. That’s £600 vs £320. Both use the FNZ platform; both are well-run financially sound large insurers. What does SL do that AXA doesn’t? Is it service? Functionality? If so, is it fair to ask the client to pay more? The answer is always down to you, in conversation with your clients, but that conversation needs to happen – and to be documented.

We find two main faults with platform pricing (and this Guide only deals with pricing in isolation).  Firstly, we think the wrong people are paying for platforms. Most of the benefit accrues to advisers – ease of admin, consolidation, bulk client management and so on. So why are clients paying? Aren’t platforms just pieces of kit that advisers use, just like back office systems? Why aren’t they charged like that, so advisers charge a total amount which covers all the costs including the systems they use for custody and dealing?

If clients must pay for platforms, then the platforms themselves must be much clearer on the value they add to clients and why those clients should be happy to pay the charge.

Secondly, we’re not convinced that ad valorem (basis points) charges are fair. Does it really cost twice as much to run a £150k ISA as a £75k one? No, it doesn’t. As the FCA continue to look for links between work done and money charged, we can’t help thinking that the pain will (or needs to be) spread from advisers to providers – and maybe to fund houses too.

Anyway, that’s just a taster. We also look at PS13/1 and your new due diligence requirements – that’ll cheer you up – and we do some just-for-fun Imaginary Platform Pricing Awards too.

If you’d like the Guide then you can order from http://www.langcatfinancial.co.uk/advisers. Scroll down the page, type CHEAPCAT in the discount box and select whether you want regular updates or not. Either way you get £50 + VAT off the standard price.

Tidy!

Wraps & Platforms