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Bill Vasilieff: Why platform experts are wrong to focus on costs

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Another week and no doubt another industry consultant or ‘expert’ on platform pricing telling us all how expensive we are and how we should move to a flat pricing structure because it’s cheaper.

It is interesting to see that the blogs almost always have comments from advisers stating that choosing a platform is about much more than price and not all platforms are the same – much as platforms argue.

But the consultants keep on about price. Maybe that’s because it is easier, but if it is, they really should get their facts straight.

A couple of recent studies claimed that appropriate price points at which to compare platforms were at a low of £100,000, an average of £200,000 and a high of £500,000.

The average client portfolio at Novia is around £100,000 and other platforms I have spoken to give a highest average of around £130,000.

And that is the mean. The median on the Novia platform is much more like £50,000, so the low pricing point used for studies should be much more like £25,000-30,000.

So what, you might ask. At the £30,000 pricing point and even at £50,000, the flat fee platforms I have looked at are more expensive, considerably more so at the lower end, than ours which is charged on basis points.

The crossover on where the flat fee chargers become cheaper depends on factors such as the number of wrappers but it could be quite high.

For example, one platform I looked at charges two fees for a fund switch (sell and buy) per fund, whereas we are free.

The myth that flat charging platforms are cheaper is just that – a myth. For the majority of investors they are probably more expensive.

Basis point charging is very common in financial transactions in all sorts of financial institutions, including banking, fund management and a whole host of others.

Why should platforms be any different? Basis points means there is an element of the wealthier paying a bit more but to change to a flat fee structure across the board would make platforms too expensive and inaccessible for many investors.

In addition, wealthier investors do cost a bit more to administer for a number of reasons such as asset complexity. There is also a risk premium to consider, as if things go wrong they are more expensive to put right.

Of course, price is just one factor in choosing a platform; like any other product or service, platforms offer different features, levels of functionality and service quality.

One report recently mentioned several times platforms charging for ‘custody’ but that is really missing the point; platforms offer a whole lot more.

Bill Vasilieff is chief executive of Novia

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I completely agree

  2. Anthony Morrow 24th July 2015 at 3:27 pm

    I agree with the point around these “consultancies” are nothing marketing businesses simply creating as much content as possible for people to pay for or which to use to gain media space. From the reports I have seen there is noting that could remotely be described as containing robust, empirical or academic standard research which of course is what you would expect any market capacity or industry strategy paper to contain. Purely subjective views based on a couple of conversations with industry people does not a comprehensive view of the market give.

    My own view, for what it is worth, is that the platform market, (such that is continues to be called that) along with the advisory and asset management market, will not be enjoying tucking into total costs north of 100bps for much longer.

  3. This is the response Money Marketing received from The Lang Cat in reply to Bill Vasilieff’s comments:

    Our recent report on platform pricing sparked a bit of a debate about price versus suitability. We strongly believe (and said in the paper) that platform selection is about much more than price and analysis of pricing trends is a separate issue to suitability. The UK has a very diverse platform market, which means advisers can focus on ensuring the selected platform meets all the client’s needs. Price is just one aspect of this assessment.

    But let’s face it, the paper was a study about market pricing trends and to do that we needed to assess the highest and lowest points. Regardless of portfolio size, our modelling of likely future trends is similar across the board. This comes down to clear communication. Most platforms (but not all) are reasonably clear about their charges, but perhaps could do more to help clients understand the total cost of ownership. If platforms really want to help advisers, they should be clear about what type of client is, and more importantly, is not suitable for their platform.

    Terry Huddart

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