The Lang Cat principal Mark Polson says the complexity of platform pricing is reaching its “inflection point” and that new platform entrants are set to challenge the traditional basis points charging structure.
Speaking at the Institute of Financial Planning conference in Newport today, Polson said he failed to understand why typical platform charges were set in basis points according to percentage of assets invested, with so many players in the value chain benefiting from the client’s increased wealth.
He argued while advisers create a financial plan for their share of the client’s returns, platform costs are a little more expensive for high net worth clients with negligible additional costs in running £80m in a fund rather than £100m.
Polson said: “I can’t help thinking that when you see all these layers of implicit charges, we’ve kind of lost it a bit. We are just ladling on charges and because people do not translate charges into cash terms in their heads when it is presented as percentages, we just do more of it.
“Platform charging must be reaching its inflection point. Existing platforms may not want to change their models but we will see some entrants move their pricing to either a mixture of fixed costs and basis points similar to AJ Bell, or fixed costs like Alliance Trust Savings. There are only a few people doing this kind of pricing right now but I know there is someone else planning to do it in the next little while so expect some moves around that.”
Polson also believes advisers should be using their collective bargaining power to drive down costs for clients, rather than leaving platforms and fund managers to negotiate preferential share classes.
He said: “Groups of advisers could come together and say ‘we are in a position to influence flows’. It would seem far more reasonable that advisers should be the people who negotiate better rates with fund managers.
“You might need to do that collectively and perhaps the mechanisms don’t really exist for that yet. But if a bunch of advisers can get together and say to fund manager x that they all expect to be placing business into a particular fund, and they would like collectively to get a better deal, that seems to be a much more healthy way of doing it because the influence comes from the adviser level and not the platform level.”