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Holly Mackay: Platform price wars episode II – attack of the clones

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With the advent of the RDR and the kiss goodbye to commission, direct platforms entered a period of slash and burn, reducing their administration charges throughout 2014.

In the run-up to this April, with a continued anticipated swing towards drawdown products at the expense of annuities, we are now seeing the start of a second price scuffle, as providers either review their drawdown pricing or play catch-up and haul old pricing structures into 2015. Many of the drawdown one-off or income payment charges are being removed as competition for the “pension freedoms wallet” gets hotter. 

First to reveal its hand was seasoned veteran Hargreaves Lansdown. In what is emerging as a trend, the platform decided to do away with several of the former one-off fees associated with drawdown, making it a lot more competitive for new customers. Gone are the charges to open an account and also gone are the one-off fees for cash payments. The key remaining one-off fee is a penalty of £295 for those who use the platform to access the pension freedoms and close up shop within one year. Fair enough.

Over in adviser land, Standard Life followed suit last week, announcing the removal of some one-off charges in its advised Sipp. The former set-up charge of £208 for drawdown and an early depletion charge of £312 have been canned. Standard’s peers are sure to respond.

Today, Tilney Bestinvest has become the latest platform to announce a revision to pricing, removing the former £100 charge to facilitate income payments in drawdown for existing and new customers with accounts worth more than £100,000.  The Sipp service starts at 0.3 per cent and there is no annual administration charge.

More platforms have also confirmed in a secret squirrel way that their drawdown pricing will be revised between now and April. I would expect to see at least another few over the next fortnight.

Newcomer Nutmeg has also joined the pensions arena this year with a new Sipp product administered by Hornbuckle. A drawdown product will follow in the summer. Playing the low-cost card, this all-in-one provider charges a starting rate of 1 per cent which falls to 0.75 per cent for a £50,000 portfolio. Although including an average fund charge of 0.23 per cent, the platform will not be a cheaper route to market than a customer buying passive directly through almost any other platform. But of course this fee does include professionally managed fund selection and asset allocation, and could appeal to many if they are prepared to take the punt on the still embryonic brand.

Amidst all this change, political talk about introducing drawdown price caps may actually prove redundant. Consumers have choice in this market and it appears competition is having a natural impact on the associated costs of drawdown and the platforms we will access this on. The pricing clones are coming and this battle ain’t over yet.

In other platform pricing news, earlier this week, Willis Owen became the latest platform to reduce its charges, playing catch-up with its peer group. Much of 2014 saw the platform carrying the uneviable deadweight that was a total 0.73 per cent platform administration fee. Changes to technology and systems providers behind the scenes has enabled Willis Owen to slash its fee to a starting point of 0.4 per cent, saving an investor with £30,000 in an Isa about £100 each year. 

Notable are the comparatively low tiers they have which see the lower 0.3 per cent rate kick in at £50,000. This is nice. With average direct account sizes much smaller than their advised peers, some of the tiers we see in this space are, in practice, pretty meaningless.  Every pound more than £250,000 will be a bit cheaper? Whoop-di-doo.

At 0.2 per cent for portfolios with more than £100,000, this platform is now one-third cheaper than giant Hargreaves for a £150,000 Isa investor.  Equities are also newly available and decently priced at £7.50 a trade.  With a new Sipp, supported by Avalon, these former discount brokers look very different to the creatures they were just a few years back.

The table below shows customer costs (including assumed active fund management fees and platform fees) for holding £30,000 in Isas on some of today’s larger DIY platforms.

£30,000 Isa charges    

Charles Stanley

 

 £     300.00

iWeb

 

 £     310.00

TD Direct Investing

 

 £     315.00

AXA Self Direct

 

 £     330.00

Barclays

 

 £     330.00

Fidelity

 

 £     330.00

AJ Bell Youinvest

 

 £     344.40

Bestinvest

 

 £     345.00

Willis Owen

 

 £     345.00

Hargreaves Lansdown

 

 £     360.00

Chelsea

 

 £     405.00

Interactive Investor

 

 £     405.00

Alliance Trust Savings

 

 £     450.00

The Share Centre

 

 £     468.60

Assumes that 12 funds are bought in year one; no short-term or one-off discounts have been included; no equities; a fund fee of 0.75 per cent has been included in these numbers

The pricing war which got so many column inches in the media early last year is far from being played out, as drawdown now takes centre stage and those outside the newly accepted ranges bring themselves into touch. 

Holly Mackay is an independent investment writer

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Many years ago at the IFP confrence in 1994 The key speaker at the conference Nick Murray in his key note speech A Rose is not a Rose predicted that many investors would blow their retirement savings for nickels and dimes over the Internet
    Reading your comment Holly and seeing the changes the years I am sure Nick will proved right . Currently we are seeing stock markets driven by momentum of quantitative easing.Frankly it has been easy to make money since 2009.
    What will happen to these services when the momentium stops How will cost be covered then to service their proposition
    It going to be intresting a volatile market, savers panicking due to losses and because most vast providers work on a percentage basis falling revenues.

    It will take a brave man to try and raise fees in an environment described above

  2. Whilst I realize that assumptions need to be made to make comparisons the comparisons above are hardly helpful.

    As an investor with Alliance Trust I would never dream of buying 12 funds with only £30,000. No equities ? why not – perhaps because many other adviser platforms can not provide ? No passives, No Investment Trusts ?

    I will continue to pay my £75 pa fee and £12.50 to buy and and £12.50 to sell and have total costs far less than with any other platform.

  3. The platform market needs a proper shake-out. Alliance Trust are best placed for this but seem to be having issues installing their new technology.

    If they can make a profitable go of fixed fee custodianship with a reasonable technology back-end they will clean up unless competitors follow suit.

    The true low-cost consumer platforms are actually the stockbroking sites that realised they could offer a similar service for fund purchases.

    On a platform like iWeb it’s possible to pay no ongoing fees, and a £5 buy/sell fee per trade. With a low turnover portfolio the running costs are next to nothing. That said, iWeb are putting their account opening fee up from £25 to £200 next week!

  4. @BONES the ATS model is a transctional one so is going to be most affected by assumptions used, it favours buy and hold investors and those with large investment amounts and vica-versa.

  5. @Gav – agree completely. With a fairly large portfolio I would guess that I’m saving over £2,000 pa I could save more but do like to be fairly active with Individual stocks. Passives, plus buy and Hold IT making up the bulk. My point though was more directed at how comparisons are made. If they are to be of any use they must be tailored to the individual.

    @FinancialWalker. They do make a profit. I have heard about IT problems but not personally experienced any. Buy, selling, monitoring values all straight forward. I appreciate that they don’t have some of the fancy IFA tools available elsewhere but nothing is missing that can’t perhaps be better found elsewhere.

  6. It is good to see Standard Life reducing their charges . . .at last . . .and they have such a long way, they can go ! It would be nice to see a more ethical approach – or the development of education help and assistance to promote Standard Life as a potential product provider – who can rely on and Trust. Currently their arrogance gets in the way of their competence – or their ability to serve clients, BEST INTERESTS.
    Great insight by Holly again – and so useful for guidance for ALL Good Advisers. Thanks

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