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Paying for platforms: Who picks up the tab?

Latest research throws open argument that advisers are the real winners but clients pay

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.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Isn’t the ‘who pays’ rather a sterile argument, or not an argument at all?

    Where platforms are concerned, is the client better off (including cost, convenience, etc.) having their assets on a platform or off it?

    The cost alone of an adviser trading and managing a whole load of clients invested directly with multiple providers makes this a simple question to answer. Platforms add value.

    And the client pays one way or another, either directly to the platform or through increased adviser fees.

    Repeat after me… “However you cut it or dress it up, the client always pays”. Repeat ad nauseum…

  2. Of course the client should pay….. is my reaction before thinking about the ins and outs. We operate a largely flat-fee structure, so we would need to pass on platform costs to the client, if we were to incur percentage costs for administering client assets.

    But then do we run a two tier charging structure, with one charging structure for client on platform, and another for those who are not on platform? Or would we feel obliged to pay SIPP fees for our clients who are in non-platform SIPPs? Would we have to have a different charging structure for clients on Elevate compared to clients on Cofunds, for example?

    Perhaps we could make significant cost savings. If we are paying for the platform, would we be required to justify the suitability of that platform for each individual client, or could we select one platform and treat it as just another back office system? Would this be seen as reducing client choice, or increasing efficiency, which we could pass to the client in the form of reduced charges?

    But if we are only operating one back-office platform, which we pay for, are we still independent or a step towards becoming another SJP? Do we white label the platform? Does this make the client feel more wedded to the platform? Or trapped on it?

    For us, a platform is just another policy. We don’t use a central platform and we consider each client separately and recommend a platform or traditional policy as appropriate. We don’t white label. The client understands that they have a policy with whichever platform we have recommended and they pay policy fees for that platform. They understand that they can transfer that policy to another adviser at any time or, in some cases, deal directly with the provider.

    So there’s some interesting considerations for advisers paying platform fees but I believe that this could ultimately restrict client choice and flexibility.

  3. This article has changed my life for ever:

    I am turning the lights off in the office, so when clients come to visit we can ask them do you want to pay for the electricity and the bulbs when you come to visit or are you happy with candles?

    Our office phone number? Sorry do you know how much calls costs and I have to pay for the line rental. I’ve asked Buzby to come and pick up the phones on Monday, we dont need them anymore.

    I am also sticking all the PC’s on ebay and going back to quills and ink, that way the clients will get a much cheaper service.

    This is a non-argument surely. The world moves on, things improve and people want things now and now is not free (despite what my teenage kids think).

  4. Jonathan Willis 6th October 2017 at 5:35 pm

    I haven’t read the whole article as not had the chance but in my simple opinion and my simple mind I think that the client should pay for the platform charge. In my situation I disagree that the adviser is the main beneficiary. Why? Well I pay for the service of a separate back office provider. I only recommend platforms where a client has a need for a platform such as multiple product wrappers. The only thing I am keen on for my benefit when choosing a platform is if it syncs with my back office which majority do. The rest of choice of platform is down to client needs. I also use a platform if it is going to benefit a client in some way for instance institutional share classes. If not needed I will recommend a cheaper solution if appropriate such as a stand alone personal pension. So, why then should I pay for the cost of the platform when it’s not selected for my benefit. Can we not just focus on where clients really lose out rather than who picks up the bill for a platform??

  5. Another pointless bout of naval gazing.

  6. Although, if the platform is ATS, the question is more likely to be ‘who suffers the most’. I would argue it’s definitely the adviser

  7. Like Jonathan Willis wwe pay (a lot of moeny) fopr our back office system. In theory we could manage clients across managers rather than platforms, but that doesn’t actually save the consuerm anything financially. Moving away from a (good)wrap paltform is much easier than moving away from a dinoseur life company if a client needs, wants or is advised to.
    Ivor’s comment abut ATS made me smile, their charging structure sounded very appealing until the system was shown to me (sorry Asndrew, it’s nothing personal, I just don’t like it) and I recognised it as the same as AEGON Retirement Choices which I found clunky and not user friendly.

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