When the fund supermarkets and wraps came to market I wondered who their real customer was supposed to be. Two years on from the implementation of RDR I find myself no further forward in answering that question. And that has me worried. The RDR was intended to raise professional standards and with regards to platforms the FCA has this to say:
“Using a platform can improve your business’ administration. However, there are cost implications to adopting this technology and you need to ensure that adopting a wrap does not increase the complexity and costs to your clients without giving them valuable services in return.”
I am worried because, as a consumer with experience of five different platforms, I am struggling to identify what those “valuable services” might be. The only difference between myself and the typical platform investor is that I have more inside knowledge, so I consider myself a reasonable proxy for a consumer view.
One of the platforms kindly agreed to meet with me recently, as a consumer, to hear my concerns. During the meeting the following customer services from the platform were mentioned:
- Online valuations
- Custodianship of assets
- Ease of trading
- Fund discounts
While not an exhaustive list, it captures the main benefits that platforms advertise to retail investors. Clearly advisers should be careful in selecting platforms for their clients to ensure these benefits not only fit the needs of their client but also represent good value for money. The due diligence process for platform selection should include an analysis of the client facing benefits to ensure they are fit for purpose. This behoves the adviser to ensure that the benefits are as advertised.
Offering online valuations might tick a box for some clients but how up to date are they? Many platforms update their valuations the day after trading; some take even longer. Is this valuation clear, fair and not misleading, then? Custodianship of assets might be more cheaply achieved using a nominee account or open architecture product.
Ease of trading will be a benefit to many clients but is it at a price commensurate with the value? Several thousand pounds a year is not an uncommon fee level for high net worth investors on a platform. Fund discounts are valuable; the client could pay far more going directly to the underlying fund managers. Of course, the client could go to a non-advised platform and obtain the same levels of discounts.
There are also adviser benefits. Online dealing, automatic reconciliations, adviser charge collection and so on, all offer tangible cost and time savings to the business. The growth of platforms certainly has more to do with adviser demand than client demand. My worry about platforms is who benefits most: the client or the adviser?
My platform providers, with one notable exception, have shown no interest in talking with me or indeed even communicating to me as a consumer. Despite the fact I am the paying customer in the relationship, my views have not been sought at all. They all, however, have regular contact with their financial advisers, who dictate the development agenda for the platform.
Future improvements to functionality, therefore, suffer from a conflict of interest: does the adviser push for client-facing improvements or adviser-facing improvements? The platform consumer may be paying the provider to improve the profit margin for the adviser. If this fed in to lower costs of advice then there would no issue but, as we know, the costs of advice have been rising since platforms appeared.
Platforms and advisers might want to give thought to a change in business model. Charge the adviser firm and not the client. It would require higher advice charges to include the platform costs but there is no reason why overall costs for the investor should change. Adviser minds would become more focused on the total cost of delivery of advice, product and platform to the client, since it could be expressed as single unitary amount.
These are not just issues faced by me and the platforms I have dealt with. Those platforms that charge retail investors need to be very clear about who the customer is: asking the investing public to fund adviser profit improvements is not what RDR intended.
Richard Leeson is chief executive officer of Adviser Advocate