Advisers have been squeezing costs in the value chain for the past decade. Their own fees have held up well – after all, they’re the ones in the driving seat, and with direct contact with clients advisers are well-placed to extol the value of their services. But the costs of platforms and asset management have been under pressure.
For platform-based model portfolio services (MPS), the relentless focus on charges has been both a blessing and a curse.
- On the plus side, MPS compares well for cost with bespoke discretionary management and delivery is more efficient than bespoke advisory portfolios. So asset growth remains strong.
- On the minus side, MPS is growing into a crowded market and is highly scalable – driving aggressive competition on cost.
In our recent report on platform MPS we found that MPS fees have been declining with the entry of some lower-cost providers and charge trimming by some existing providers. The main cuts in charges have been made by actively-managed and ESG/ethical/sustainable MPS. The median price of active MPS is down by 2.8bps and the median price of ESG MPS is down by 5.0bps (excluding underlying investment charges in each case). Charges for passive MPS have remained broadly similar to the year before.
Wealth managers will be looking at other factors to differentiate, beyond price, to avoid a race to the bottom on fees. However, this can be hard to pull off in such a market where wealth managers are intermediated by platforms and dependent on them for distribution.
Wealth managers are reluctant to compete on cost alone – aside from the hit to revenues, it’s only a matter of time before a competitor with an even cheaper offering poaches cost-driven clients.
Platforum’s UK Wealth Management: Platform MPS report looks at how advisers use MPS on platforms. It provides insight on market size and growth, the leading providers, how wealth managers compete and differentiate and advisers’ attitudes towards their use and selection of MPS. Our next UK Wealth Management: Investment Distribution report covers how wealth managers are running portfolios, investment products and investment solutions, and will be published in October. Please get in touch for more information.