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FCA urged to scrutinise platform and IFA charges

UK-Currency-Money-Coin-Pounds-GBP-700x450.jpgRegulators should focus on platforms and other intermediaries, not just asset managers, when they take aim at fee transparency, experts argue.

Speaking at a Transparency Task Force debate last week, Newton head of defined contribution Catherine Doyle claimed regulators need to examine the complex layers of fees around investment platforms, and not just point the finger at asset managers.

She says: “The spotlight is always on asset managers rather than the costs that are held by platforms. How should that be dealt with?

“Also, in DC, a lot of the structures are target date funds or life strategy, so apart from the underlying building blocks, there are costs that will be attributed to the platforms again, so how do we deal with these different layers?”

Doyle’s comments follow this month’s publication of an FCA consultation paper on transaction costs disclosure suggesting new rules where asset managers could be required to disclose aggregate transaction costs to pension schemes that invest in their funds.

Among the proposed rules, asset managers must provide a breakdown of transaction costs, including specific costs such as taxes and securities lending costs, when asked.

Doyle says: “It feels [the platform world] is a complex heavily intermediated world. Obviously as asset managers we are dealing with our building blocks but there is more complexity than that.”

The Pension PlayPen founder Henry Tapper, speaking at the panel led by investment consultant and former Investment Association chief Daniel Godfrey, said an analysis of platform charges should be addressed separately from the FCA study but agrees it is a “massive extra problem”, especially in self-directed investments.

Tapper says: “The FCA paper doesn’t deal with platforms and the total cost of DC. If it did it would do the job of the DWP. We know that a typical Sipp platform will charge 2 or 3 per cent, so there is this massive extra problem out there which has to do with self investment in these platforms which needs to be addressed elsewhere.”

However, Godfrey says it is more urgent to look at funds first and the way they charge before moving into examining the distribution chain and the different layers of fees applied to it.

He says: “In asset management we always had issues in transaction costs. Maybe there is more leakage of value in foreign exchange transaction costs than anything. Funds are the building blocks, there are a lot of different ways to access them, as through a platform or an ISA, the core competence that you are trying to access is the competence to give you exposure to all stocks in the world at low cost and to get better returns so we need to get that right first.

“Also, we need then [to think about] the cost of platforms and advice.  We also have the operating costs and the transaction costs and I think the issue on transacting the fund is a separate issue that is around the practice of investing.”

Godfrey says once funds’ transaction costs as well as custodian and explicit costs are revealed, to calculate the total net asset value of the fund, both platforms and IFAs could apply that cost on each unit they hold for their clients and have a transparent final fee.

He says: “For funds we had the ongoing charge figure, but the only thing significant with that in terms of describing something has been the absence of the research costs which are being paid through dealing commissions.

“In calculating the NAV for clients, you must know which costs have been agreed, whether that is transaction costs, the explicit transaction cost and the costs paid to custodians. What we’ve got to look through the total cost of ownership, with the published NAV, there should be a published true cost since the last NAV was published on an unit basis because then a platform provider or an IFA can apply that cost to the number of units they hold, which you as a fund manager most certainly don’t know, so you know what will be the cost of holding those units or to give advice.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. “We know that a typical Sipp platform will charge 2 or 3 per cent” What for? Most platforms that provide a SIPP will be a lot less than that. I would suggest typically 0.35%. Or is this a case of comparing apples and pears? ie fixed flat fees compared to %? Eg £550 annual SIPP fee on fund of £20,000? Misinformation, misguidance? Let you decide.

  2. I think this headline is more than a little misleading. While I can fully concur with transparency, the headline appears to say that the regulator is going to interfere in the actual charges and charging structures – which in fact is none of their business.

  3. What an utter load of trollop – he may as well of written it in Chinese !

  4. Why is the FS world so fixated on transparency for everything? Who cares what the component parts are? All the client wants to know is “how much it is going to cost to hold the investment”. As long as that is clear to them, that is the only thing they are interested in – the bottom line figure. It is all going boogaloo

  5. Perhaps the FCA might care to submit to independent scrutiny its own charges ~ a Cost:Benefits Analysis maybe? Whoa, no way José, we don’t allow nasty intrusions such as that.

  6. IFA costs are primarily dictated by the regulatory environment in which we operate, the more we have to do, the greater the fees and levies, the more we have to charge the client. This transparency proposal would no doubt cost more to administer than the benefit it is supposed to provide.

    Platform charges of 2%? If I put 200k into James Hay my client is looking at 0.18% per annum, other platforms are of course available.

  7. Julian,

    I have read today that weather forecasters can predict that it will cold next year. I guess we have an Ice Age coming in 2018, well we must have if you think the FCA will do that!

    Anyway I agree we need more transparency from the FCA but sadly it will not happen.

  8. The costs quoted in this article bear no resemblance to my experiences of the costs, 2 to 3% for a SIPP? Who would pay that? Outside of fixed SIPP set up costs or property fees why would anyone pay more than 0.40% (absolute maximum) for a SIPP?

    The FCA has platforms all wrong, we have to treat them as client products when we should really treat them as adviser tools. Most of the time it doesn’t matter which platform you use the underlying funds will be the same and clients don’t care about access or the built in tools. They just want me to advise them so it then becomes a question of which platform helps my advise my client as efficiently as possible with as little cost to the client as possible.

    We’re building portfolio’s with 0.60-0.70% TER’s on platforms that charge 0.20-0.30%. Where exactly would the regulator like us to lower the costs?

  9. peter gerard mulholland 18th October 2016 at 8:18 pm

    “Leakage on fx..”
    Not kidding!!!
    Aj bell charges 2% every time you buy and sell foreign shares if that’s not a rip off I don’t no what is- others do similar
    Fx is the only part not really regulated so no surprise it’s abused

  10. Double dipping (and triple and quadruple dipping). X for the advice firm, y for the platform, z for the SIPP wrapper and of course there are the fund management charges.

    THAST is what the regulator needs to address.

  11. christopher Handley 19th October 2016 at 11:21 pm

    In a world of technology it does seem to me that transparency can be overcome. However, as many have pointed out, its very difficult to compare or say what is reasonable generically. We all define our own market, and why should a client investing £100,000 pay the same % as someone investing £2m ? Though maybe they should in monetary terms…..Maybe if we all moved to an hourly rate, then everything would be equal – assuming we all work at the same rate and took the same time, but then the FCA would need to be clear about what “good looks like”. Maybe the FCA would then follow us around with a stop watch ! On the point of “Platforms” making them cheaper sounds great, until they go bust or run out of cashflow.

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