If the maelstrom of platform pricing launches, online debate and pricing heat maps over the past couple of weeks is anything to go by, the FCA’s PS13/1 is beginning to bite. We have seen a rush of platforms unbundling fee structures and re-engineering their business models but is the industry really entering a brave new world of transparency for all?
There is no doubt advisers have thrown down the gauntlet to platforms, transforming themselves into a true fee-charging profession alongside accountancy or law. We have also seen progress from fund groups and platforms with clean share classes now readily available and the unbundling of platform fees by April.
But of the almost £250bn of assets on platforms, how much is invested in clean share classes through an unbundled platform charging structure? Not nearly as much as we
A large proportion of assets are still held on platforms that have chosen to leave their existing clients in the old bundled share classes. By 6 April, they will impose explicit platform charges for new investments but have failed to kick the rebate habit for the large amounts of existing business they hold. They have side-stepped the opportunity to unify their prices for all platform investors, instead choosing to wait until this is forced on them in 2016.
Rather than one consistent charging structure for all, new clean investments may be paying lower total charges while the existing investments pay higher charges that are only partially offset through passing on some of the rebate.
There is no difference in the product – it is the same platform, the same manager, investing in the same assets in the same proportions. There is no difference in features – no increased frequency of dealing, no new sources of alpha (or beta for that matter). It is simply a different tariff.
The date of the investment determines what the client pays, not the investment product they have purchased.
Differential pricing may help platforms avoid the rapid loss of revenue that might occur from a mass switch to a cheaper explicit charging structure but it does raise some additional questions. For example, how sustainable are these “new business” pricing structures?
If platforms are uncomfortable applying this pricing to all of their customers now, what makes them think they will be able to afford to in 2016?
Advisers are facing a conundrum. While platforms appear to be comfortable with differential pricing, can an adviser ever be? Which of their clients need to change tariff?
It seems likely that advisers will have to step in on their clients’ behalf if their platform is unwilling to put clients on the best available tariff.
Experience tells us that most advisers will be uncomfortable charging their clients for this additional service, leaving them, once again, having to absorb the cost of regulatory change.
David Tiller is head of platform propositions at Standard Life