Platform pricing models can be complicated at best to understand. From tiered pricing structures, to ‘pay what you see’ models and the slightly more elusive flat rate fees, everyone has a different idea on what they should be charging and how they should be doing it.
Platform pricing remains a key area of focus for advisers, given that almost 70% rate low charges amongst their top five musts of the perfect platform. A further 50% of advisers cite looking for lower charges as one of their top reasons for transferring assets away from a platform. However, when we compare platform choice with fees, it is clear that price is not the only factor – “Price is what you pay. Value is what you get.”
A brief history of platform pricing
Adviser platform charging has been coming down over the last three years, with the majority of changes in platform pricing taking place in 2013 following the retail distribution review (RDR). Extracted from the Platforum archives, we have been able to look at the shift in platform pricing over this time period on a number of different scenarios. For example, the average cost of a £50,000 portfolio with 20 annual transactions has reduced by 10 basis points since January 2013. On a £50k portfolio, roughly evenly split by tax wrapper, customers are paying £50 less than they were at the start of 2013. And on a portfolio of £250k, they are paying £85 less.
The current pricing landscape
We have developed our Adviser Platform Pricing Simulator (trademark, as well as catchy name, pending), which gives us the ability to compare the annual charges of all the major adviser platforms for a given scenario.
Platforum are able to offer bespoke pricing analysis as well as a look at the historical evolution of pricing based upon any given scenario and also provide some insight on deals offered by platforms.
We are able to look at:
- Total portfolio size
- Tax wrapper split
- Transaction fees
- Drawdown fees
- Interest on cash
A detailed analysis of platform pricing will be available in our upcoming reports (both due to be published next month);
- Platforms for Advisers – our brand new platform guide for financial advisers
- The UK Adviser Platform Pricing Guide – our eagerly anticipated report providing an in-depth look at the pricing propositions of all the major adviser platforms.
The cost of ETFs on-platform
In our digging into pricing we’ve also noticed that ETF portfolios are far more expensive to run on platform than fund portfolios. We are looking at the barriers to ETF take-up in our ETFs, Passives and Smart Beta report out next week and price is certainly one of the main barriers.
With the majority of adviser platforms not charging for fund transactions while charging for securities transactions, investors using model portfolios consisting only of ETFs are subject to significant additional dealing costs on a number of adviser platforms, which could deter advisers from recommending portfolios made up exclusively of ETFs.
Looking at a £200,000 portfolio, 10 platforms would charge more for an all-ETF model portfolio as opposed to one consisting entirely of funds. 9 platforms who don’t charge for fund transactions, levy a transaction fee on ETF trades.
Our research shows that advised investors can be paying as much as 50bps more annually for ETF model portfolios – a whopping great £1,000 in real terms! Prices on adviser platforms have come down a long way but for ETF model portfolios, the end-investor could still be left out of pocket.
Finally, we want to hear from you. Instead of ‘Name that platform’ –we want you to name that ‘Platform Pricing Simulator’, so send in your suggestions to the team. We can’t promise we’ll use them but we will tweet the most amusing…
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