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Platform pricing is reaching its ‘inflection point’

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.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I presume this man doesn’t use a stockbroker. They charge on the value of the portfolio. Fund managers do the same. Where I do agree is that performance fees in addition are untenable. I guess I have some sympathy of the hybrid, but why not just take a smaller percentage all round? Management percentages in the US are a lot less than here, as are adviser percentages.
    I don’t think it is percentages that are the issue – it the size of the percentage that perhaps needs looking at.

  2. I think Mark is being uncharacteristically less than radical here. The direction of travel is probably away from ad valorem pricing ( I mean other than risk theres not that much justification for it ). I think the next stop is that the platform cost should potentially be borne by the adviser and disclosed and charged as part of the service. That way all the competitive arrows are pointing in the right direction.

  3. Thanks Alan – think I agree. Harry – no, I’m not rich enough. But I do know how they charge, and just because that’s how it’s always been done don’t make it right. Open question – inherent cross-subsidy of ad valorem charging vs each client bearing their own fixed costs and then generating some upside through a radically reduced basis points charge – which is worse? Totally agree on performance fees by the way.

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