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Head to head: Should all platforms charge flat fees?

With a number of platforms revamping their pricing structures in recent months, two providers go head to head to tackle the fixed vs percentage costs debate.
Alliance Trust Savings chief executive Patrick Mill
Mill-Patrick-Alliance Trust-2014

The case for flat fees

When it comes to platform services, flat fees are the only fair option.

First, they have less of an impact on long-term investment returns. Fees can make a huge difference to the value of an investment over time, especially a larger one.

Looking at a £150,000 investment – assuming growth of 5 per cent a year and a 0.8 per cent ongoing fund charge – after 20 years an investor paying a flat fee of £10 a month could be about £20,000 better off than with a platform charging 0.35% a month.

Second, flat fees are more transparent. Percentage fee providers are effectively changing their cash price to the customer every time money is added and as markets go up and down.

While it might be written in plain sight that the platform cost is, say, 0.35 per cent of the investment, how many customers can work out how much that adds up to in pounds and pence?

Our research found that 32 per cent of investors think they don’t pay anything for investment administration. And of those who knew, 71 per cent did not know how much.

With flat fees, it’s always clear exactly how much you need to pay.

Third, ad valorem charging is essentially a tax on wealth. A platform service is, at its heart, an administration service. It provides tools to select and manage investments, keeps records and completes transactions to order.

It does not cost ten times more to service a £500,000 Isa than a £50,000 one. Equally, servicing a £5,000 ISA is not a tenth of the cost of a £50,000 one. With a percentage fee, customers with larger portfolios are effectively subsidising the smaller portfolios. With a fixed, flat fee, everyone pays the same and covers their own costs.

I can’t understand how anyone in the industry believes it’s fair to charge wealthier customers more for the same service.

From a platform perspective, it just makes sense. Flat fees reflect the costs of the services provided and in a scalable way that doesn’t expose the provider to changes in market value. It makes for a more stable commercial model.


Nucleus business development director Barry Neilson


The case for a percentage charging structure

The tiered, or percentage, charging structure has become the most common across the UK platform market’s adviser-focused offerings, and for good reason.

Percentage fees are far easier to understand, and far more transparent, covering the all-in cost of using a platform annually. Advisers know what their clients are being charged, and there are no nasty surprises lurking in the small print as they go about the daily business of managing clients’ portfolios.

In comparison, the hidden charges associated with some fixed fee platforms are anything but clear.

For example, on most tiered platforms, what you see is what you pay, meaning providers have built in any costs they incur associated with portfolio rebalancing, the cost of encashing a portfolio, moving into drawdown or other similar activities. This provides peace of mind and allows advisers to be as flexible as required when it comes to clients’ portfolios.

However, if you are using a fixed fee platform, the models are typically menu-based and extensive, with fees for re-balancing or other specific events, meaning clients get stung with additional fees.

While they can seem minor, these charges can add up very quickly. For example, if a client held 25 underlying funds, on some fixed fee platforms that could mean 25 charges for selling and then 25 charges for re-buying alternative holdings. These fees erode returns, weighing on gains made by portfolios.

Percentage or tiered fees are also better value for clients with smaller pots as fixed fee models have to work across all portfolio levels so the annual fee is disproportionately high for clients with lower assets and would appear disproportionately cheap for high net worth clients.

Ultimately, proponents of both fixed and tiered fees can produce figures to show how their approach is better value under certain circumstances, but there is a bigger point here about relationships.

Everything about fixed fee platforms is very transactional, with charges for all manner of activities, and this makes advisers and their clients feel like customers, rather than partners.

For us, the goal is to build long-term relationships with our adviser users, with the platform becoming very much a part of their day-to-day businesses, rather than feel like some rented service which can be chopped and changed for a new model at any time.


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. I’m not advocating either argument over the other, but I disagree with the comment that percentage fees are charged because they’re ‘easier to understand’. They’re typically charged that way because it masks the true pounds and pence cost!

    I think both arguments point out a glaringly obvious fact – you wouldn’t stick smaller value clients on a fixed fee platform as they can be subsidised on a percentage based platform, but equally you’d be mad to put high wealth clients on quite a few percentage based platforms that don’t tier enough down, or cap fees. Horses for courses. A competitive market calls for both types of fee structure and businesses (like adviser firms) should be free to charge how they like and live or die by those decisions.

  2. “Looking at a £150,000 investment – assuming growth of 5 per cent a year and a 0.8 per cent ongoing fund charge – after 20 years an investor paying a flat fee of £10 a month could be about £20,000 better off than with a platform charging 0.35% a month.”

    …and if we all worked on the minimum wage, just look how much better off our clients would be. Then I suppose we could do some pro bono work too.

  3. Neither is definitively better – but either can be. The key determinant, of course, is portfolio size.
    If we moved to a flat fee only world, smaller investors would be priced out of value.
    That they are able to find that value is, in no small part, because their costs are being subsidised by larger investors on the same platform.
    Now, you can argue that the latter are being mugged – and they are – but they’re free to move. If they don’t (either through apathy or idiocy), I’m struggling to feel sympathy (perhaps they should employ a professional adviser).

    I regard the AV charging platforms as ‘investment nurseries’. You start off there but, once your portfolio reaches the ‘break-even’ point, you move to play on the flat fee pitch.

  4. Client views on their perception on the comparative fairness and transparency of both models would be helpful.

  5. Heather Hopkins 28th March 2017 at 9:24 am

    An excellent topic for debate with arguments well presented on both sides.

    Our consumer research shows that investors prefer flat fees. When presented with scenarios, investors show a preference for flat fees of percentage fees. However, the devil is in the detail. It is hard for many platforms who are paying percentage fees to technology or admin providers to charge a flat fee.

    Interactive Investor acquired TD last year and we should see the first scale player operating on a flat fee model later this year. While a D2C platform, it will be worth watching their success at communicating this difference to investors and whether it translates to increased market share relative to Hargreaves Lansdown.

  6. So if I have a client where there is likely to be very little activity then the flat fee works. If there is likely to be 25 actively traded funds then % works. I do the homework and make a recommendation. Neither argument wins, it’s horses for courses and thankfully there are platform business models that can accommodate both.

  7. The old argument that clients can’t work out percentage charges is surely rubbish. Anyone with a calculator can work out what they are paying. Whether they know what they are paying is another argument.

    As others have mentioned, a universal fixed fee structure would price out smaller portfolios. It isn’t a case of one is better than the other, it is simply which one is best for the client in front of you.

    As a side note I have long thought that platforms are admin tools and therefore something that shouldn’t be thought of as a product provided to a client (unless of course the client wants to do the admin).

  8. Flat fees tend to favour clients that invest for the long term and are not regular traders. Many clients on a platform have favourite funds and for a platform with over 30 years of trading and a strong D2C client base that flat fees will be considerably better for most of ATS’s clients. It is also worth noting that ATS is one of the most financially secure of all platforms being a bank that is regulated by the PRA and with the backing of one of the largest investment trusts in the UK. Certainly for the vast majority of clients with straight forward long term investment needs (i.e. most clients) then the flat fee structure offered by ATS makes is a solid choice.

  9. Being an IFA we use both flat & percentage fee platforms, depending on which is best value for the client concerned. However, it’s v disappointing that ATS is currently the only adviser friendly flat fee platform (Interactive & others are not adviser facing). While we commend ATS’s vision, administration has been on a downward slope the last couple of years and their implementation of new platform tech has been an embarrassing fiasco – still not working nearly 2 years after ATS wrote to our clients informing them the new platform was about to be launched!

  10. As others have said this is a case of horses for courses and IFA’s will pick and choose a platform to suit their clients individual circumstances.
    I think that D2C clients (as I am) are also smart enough to work out if a fixed fee or a % suits their needs.
    If you overlay the Alliance Trust charging structure onto the Hargreaves Lansdown client activity by my calculations HL revenue actually increases. This appears to be a case of natural selection on the part of the D2C client.

  11. Poor attempt to justify the bps model. Demonstrates to me that it’s had its day.
    The relationship argument is concerning, the client pays the fee and should be what’s best for them not what makes a good relationship between ifa and platform.

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