Latest data shows the majority of advisers think clients should pay platform charges, but questions have been raised as to who really benefits from their services.
Critics say advisers mainly use platforms as their back-office system, which has led to some in the market questioning the extent clients benefit compared to the advantages an adviser might see through streamlining processes and lowering business costs.
An exclusive survey by consultancy Platforum shared with Money Marketing gives fresh insight into how advisers view this tension.
Who should pay?
Conflicts of interest over who pays for an adviser platform are on the FCA’s radar, which highlighted the issue in its 2016/17 annual competition report. The regulator said there was an “inherent” conflict because the platform is selected by the adviser, but mostly paid for by the investor.
However, the Platforum research confirms that most advisers still think clients should pay for platforms. In a recent survey of 285 advisers, respondents were asked if they or their clients should pay platform fees.
Eighty-seven per cent said clients should pay for the platform. Nearly three-quarters, 73 per cent, said the client is the main beneficiary.
The data suggests that 14 per cent of advisers think clients should pay for the platform, even though the main beneficiary of using it is the adviser.
The results did not materially change when the data was broken down by size of advice firm. However, there was an interesting variance in responses when advisers were grouped according to what platform they use.
While sample size varied, when asked who is the primary beneficiary of a platform, 46 per cent of advisers using the Aviva platform and 40 per cent of advisers using FundsNetwork said the adviser was the main beneficiary.
This compares with 18 per cent of Transact and Cofunds advisers and 21 per cent of AJ Bell Investcentre advisers who said the adviser is the main beneficiary.
Platforum also asked advisers about the conflict of interest that was highlighted by the FCA in its competition report. Just over half, (54 per cent), of those surveyed disagreed that there is a conflict of interest where advisers choose the platform but clients pay. Thirty per cent said there is a conflict of interest. The rest of those surveyed, 16 per cent, were undecided.
Head of Platforum Heather Hopkins says it is right for the client to pay the platform fee. She says: “While advisers paying for the platform would almost certainly lower platform charges, it would not be an option most advisers would welcome. The platform fee would represent a huge capital expenditure for many advisory firms and if a relationship went south with a client, the adviser would need to recoup the platform charges rather than the charges being deducted from the value of assets.”
The question of who should pay and who benefits becomes harder to distinguish for “pre-platform” clients who advisers might have been working with for 10 years or more.
As The Ideas Lab director Robert Reid explains, those clients would have historically received annual statements from their adviser, but once they are put on a platform, the output from their adviser would not have necessarily changed.
Reid says: “Have they benefited from the platform? Probably not. In that case, you would start to look at whether it has reduced the cost to the business. If it has, then it could be absorbed.”
He adds: “In most cases, the platform benefits both parties, not just one. It allows the client access and it allows the adviser to control the cost of online servicing.”
The transparency tripwire
In the past, the FCA has been keen to make sure clients are not shoe-horned onto the same platform, which ties into how much value clients get from that service. In its due diligence report published last year, the regulator outlined concerns that advisers were more inclined to retain an existing platform and “retrofit” due diligence to fit that decision.
Reid says not all clients should be put onto a platform by default because some do not need that service for their assets.
He says: “If you have got platform charges ranging from very little up to 60 or 70 basis points, that is a hell of a range. Going forward, the challenge for platforms will be keeping charges above 50 basis points. If they can do that they will be very lucky.”
Addidi Wealth managing director Anna Sofat says a wider question should be asked across the board about what the platform’s function is and who should pay. She says: “What needs to be debated is how do we make a judgement about whether what the platform is charging is a reasonable level of fee or not. As advisers, that is what we will have to make a judgement about.
“Platforms do now need to look at what they will provide. From the adviser community, we need to look at how we value different sections of it.”