Some argue the platform exists for the principal benefit of advisers, so why should clients pay?
Who should pay for platforms: advisers or clients? The FCA did not quite arrive at this topic in its recent platform market review but it may not be long before it does. Why should clients foot the cost of platforms when, as the argument goes, they get no benefits from them?
Of course, this ignores the benefits platforms have in fact delivered to clients. Platforms have supported advisers in delivering new client services, such as adviser-led model portfolios. They have simplified pricing structures, making it easy for consumers to understand the true cost of investing. And they have swept away the old slow-moving paper-based world.
So what would happen if the FCA made advisers pay? For a start, it would hit clients in the pocket. There would be an increase in the cost of advice as advisers, acting like any other business, would add the platform cost onto their own charge. At a time when some investors already baulk at advice fees, this could turn more people away from seeking advice, resulting in more facing poorer financial outcomes.
Operating costs for advisers would also be likely to rise. There is currently no VAT charge on platforms as they are an intermediated service. But if advisers were required to pay for platforms, they may lose this special status, adding 20 per cent to costs overnight.
In a world where the adviser pays, there could be less incentive for them to switch platforms. It is conceivable providers would shift their focus away from what clients need from a platform, and more towards what advisers require. The platform would simply become an extension of the adviser’s administration service.
Furthermore, clients themselves would be less likely to switch platforms, given the apparent cost difference between an advised and a direct-to-consumer service.
There are a host of other barriers that would make an adviser-pays model impractical. Advised platforms would need a mechanism to handle orphaned clients. This could lead to a situation where those orphaned are asked to remove their assets from the platform, as there is no way to extract a fee from them. It is also unlikely advised platforms would want to operate dual functionality to cope with realigning the charge back to the client.
Before there are more calls to change who pays for what, there needs to be a proper discussion to fully understand the potential impact on consumers. Let’s not blindly lead ourselves into poorer outcomes for them.
Alistair Wilson is head of retail platform strategy at Zurich UK