An awful lot of time is being dedicated to asking platforms to justify their existence, particularly in light of various botched re-platforming projects.
But the point gets convoluted. Alongside those who question why certain platforms exist in the first place, there is debate around who they serve and how they should be paid for more broadly. Some argue platforms exist for the benefit of the adviser, so they should pay. But this makes little sense. Will they pull the money out of thin air? Ultimately, the cost is passed to the client.
So, what the “adviser-pays” proponents are really suggesting is bundling platform charges with advice fees, lowering the bar on transparency and dialling the regulatory clock back 10 years.
A platform is not just a piece of technology like your standard back-office system. It is a product provider holding a client’s nest egg. It has obligations in accordance with FCA and HM Revenue & Customs rules. Where a platform does get things horribly wrong, like failing to pay the client’s income on time, advisers risk being dragged with it to the Ombudsman.
Bundling costs also pull the adviser closer to the dangerous territory that is vertical integration. Why stop at platforms? Why not bundle discretionary portfolio charges in? And, while you are at it, have advisers set up their own funds, too?
They can give segregated mandates to fund houses and control how much the managers are paid. Full vertical integration would lower costs for the end client, right? Except it does not. Look at the likes of St James’s Place and Standard Life. Yes, the total cost of investing needs to come down but being able to negotiate a few basis points off the platform fee is hardly going to move the needle.
The fact this idea is being bandied about as innovation is telling. SEI, among others, has been pricing platforms this way for donkey’s years. Yet, I wonder why there is not a queue of adviser firms at its door? Maybe because most are simply too small to negotiate any meaningful discount. And where discount deals are offered, they tend to come with strings attached.
Anyone who thinks secret price negotiations will result in greater competition simply does not understand the free market system. We are only able to interrogate fees when we see and understand what they are. Once you take negotiations into a dark room, you open the door to all sorts of poor practices fostered by lack of transparency.
Anyway, the idea that advised platforms make too much money is ludicrous.
Our report on platform profitability showed that for the year ending 2016, advised platforms reported a total pre-tax loss of £74m on £1.1bn revenue. This compares with a total pre-tax loss of £19m on £1.07bn of revenue the previous year. My sense is that things have got much worse since, no thanks to the spiralling cost of re-platforming.
The idea advisers can squeeze a few more bps out of platform costs with no change in service delivery is, technically speaking, bonkers.
Abraham Okusanya is director of Finalytiq