The last twelve months have seen a raft of changes take place in the platform market driven by both regulation and consumer investment trends.
According to The Platforum, the market now contains 33 adviser platforms with this competition leading to a greater focus on price and margins getting squeezed.
Previously, the average cost of platforms has sat around 35 basis points but downward pressure has brought that average down to around 25bps with many platforms reducing admin costs.
Alliance Trust Savings has offered a different type of charging model to most of its peers with a fixed charge instead of bps fees to position itself as the lowest-priced platform in the market. But there are concerns that falling costs could hit service levels.
The Lang Cat principal Mark Polson says: “Some propositions really started to shake the market up on cost grounds at least. Alliance Trust Savings proved that you can be almost comically low cost and still run a platform.”
Investment Quorum chief executive Lee Robertson says a move towards fixed costs is being fuelled by adviser demand.
He says: “I think the power lies with the intermediaries who are questioning why they are getting charged a percentage fee by platforms for what is essentially a fixed cost job. That is why platforms are reducing their prices and you will probably see more fixed cost pricing models going forward. The question is at what level do you set the pricing so you can still offer good service and be profitable.”
The regulator has yet to issue final RDR platform rules with the deadline for its final plans over-running into 2013. This has the knock on effect of delaying the deadline for introducing its new platform pricing rules which were scheduled to start at the end of 2013. The regulator published a consultation in June which announced its intention to ban cash rebates as well as bringing execution-only platforms into scope of the ban on payments between fund groups and platforms.
The regulator has now confirmed it will not publish any final policy statement until 2013. It intends to give platforms twelve months from the point of publishing rules to implement any changes.
It says HMRC is now looking into the possible tax implications of unit rebates, which under current HMRC guidance would be liable for VAT, where cash rebate payments are not.
The move to delay the policy statement has been met with differing opinions from industry experts.
Nucleus chief executive David Ferguson says: “It is frustrating that we are yet to get proper clarity around the final rules having waited such a long time. Hopefully this can be resolved soon.”
However, Transact head of marketing Malcolm Murray hopes the delay will lead to a reassessment from the regulator. He says: “We welcome thatthe FSA has taken the time to consider the possible tax implications of unit rebates and would hope this could result in a better way of working.”
Direct platforms will have to make dramatic changes to business models to abide by the new rules.
The Platforum managing director Holly Mackay says: “The big change we expect to see is the death of the concept of the ‘discount broker’, people are going to understand that platforms are not a free ride. Customers will have to pay the platform a fee. Platforms might be able to scrabble around at the edges and charge fund managers small amounts for limited services but we think most of their revenues will come from the client.”
The year has also seen the traditional “big three” platforms unveil their unbundled pricing range, but while FundsNetwork and Cofunds have both opted for lower charge options, Skandia is looking to offer clients better deals through offering them larger rebates. Skandia is also hoping its Select range of funds, with lower costs negotiated with the big fund managers, will be popular with advisers.
In terms of innovation Nucleus recently became the first wrap to add protection products onto its platform. Campbell Macpherson Associates managing director Campbell Macpherson says: “It will be increasingly important for platforms to find new revenue streams such as annuities and insurance.”
The importance of platforms in retail financial services is only going to grow in 2013 with the possible winners and losers in the market becoming clearer and more advisers, big and small, finalising their future wrap strategies.