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Sesame Bankhall: Platform and advice charges need to change

Executive chairman John Cowan on the next battleground for platform and advice charges

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Sesame Bankhall executive chairman John Cowan

Sesame Bankhall executive chairman John Cowan has challenged the status quo of percentage-based charges for platforms and advice, as the industry veteran poses questions over the appropriateness of ad valorem fees for decumulation clients.

As part of its platforms market study, the FCA will examine whether platforms are delivering value for money.

Speaking to Money Marketing, Cowan says there are wider questions to be asked about why a client is meeting the cost of the platform service, and why the charge is typically based on the volume of client assets.

He says: “Platforms have delivered a fantastic service for advisers, but I have always thought charging for the platform was an odd thing to do, because it is just part of the infrastructure. We have the client paying for the adviser charge, the investment charge and then the platform charge on top of that.

Nick Bamford: FCA platform focus must be on more than just price

“We also have to ask ourselves why the platform charge is linked to the value of invested assets. That is the next debate to be had. The argument is the risk involved is greater in running a bigger portfolio, but I’m not sure I buy that.”

He adds: “There is going to be a real battle around flat fees.”

Cowan argues as the platform market evolves, the dynamic between platforms and advice firms may change.

He says: “Platforms might well be looking to diversify into other services, such as advice, robo-advice, and artificial intelligence. Platforms are dependent on the advisory community right now, but that might not always be the case.

“When Hargreaves Lansdown came out with its direct platform, it got a lot of stick for ‘breaking ranks’ and cutting out advisers. Somebody might break ranks again.”

Cowan says the same issues around percentage-based charging on platforms apply to advice fees.

He says: “We are now four years on from the RDR. When Australia went through its equivalent of the RDR, I heard the first two years were all about getting to grips with the new regime and putting in new processes but year three was the worst – that was when questions started to come in from investors about percentage-based charging, and firms were having to develop ideas to turn themselves into lifestyle businesses rather than the narrow financial planning focus. We find ourselves in a similar position.”

Cowan also argues advice charges should not remain static as clients’ needs and circumstances change.

He says: “In the growth phase, advisers could charge a certain fixed amount, but I would question why the charge should be the same in decumulation. Arguably, decumulation work is more difficult. You would also not expect to have the same portfolio in decumulation as in the growth phase. That in turn raises questions about what is the platform’s role in all of that.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Christopher Pitt 7th August 2017 at 1:15 pm

    Really good to read that such a leading industry figure is starting a debate around charges. If we are brutally honest ‘Ad Valorem’ charging has typically been introduced by Platforms / Wealth Managers to meet their own particular needs, e.g. revenues that rise automatically with the markets. Surely, if we want to have a truly consumer-centric industry then we should start by talking to our customers, i.e. as regards the shape of payments they believe is appropriate. And, then we can decide the quantumn required to cover costs and make margins.

    • Sorry Christopher I disagree with you. I do not ask my clients what they think of the shape of payments they believe is appropriate. I do not feel it is for me to fit my charging structure and business around them. It is for me to sell what I do and what I charge and how this occurs and for the client to decide if they want to use me. I do not know of any business men/women who asks their customers what the customer should pay.

  2. I’m a bit lost here as this seems a strange argument in many places.
    “but I have always thought charging for the platform was an odd thing to do.” If John is saying platforms should not charge for their services, that sounds like a really good business model, how to go bust in one easy move.

    Charges for accumulation and decumulation should not be the same, quite agree but where is the evidence to say they are the same, mine certainly aren’t.

    Move to flat fees? so somebody with £50,000 pays the same as someone with £500,000, ah, but either the £50,000 client cannot afford the minimum fee or they are subsidised by the £500,000. The FCA will love that. or do you have a series of flat fees depending on the amount, if it is in bands then is someone just over the lower level subsidised by someone just under the higher limit, if percentage charges are banded it would seem they are much fairer, As regards potential liability?????????

    If a platform is considered as a retail product in it’s own right you can make an analogy with other products, so if I go to Tescos for a can of baked beans, I get to the door and the doorman says that will be £25 to come in sir. But I only want one tin of beans. Yes sir but we sell the beans and everything else at cost. OK, thanks but I will go to Asda.

    By the way, how does the platform Sesame use charge?

  3. And who pays for the upgrade and maintenance of the platform? We either have flat fees at an exorbitant level such that those investing under £x will be forced to go direct and pay retail fund prices (inclusive of bid/offer spreads and higher AMCs rather than institutional prices). Or are we to put up with outdated and clumsy platform systems? Price and value are not the same!

  4. Here’s an idea. Why not just let all advisers get on with doing what they are doing of their clients in a manner that suits both party’s. Don’t try to tell us how we should run our business.

  5. It is fair to raise the issue of ad valorum fees versus fixed fees for platforms but there’s far less of an argument that advisers should do that because the ad valorum arrangement means if the investments do well both the client and adviser do better and vice versa.

    Alliance Trust Savings is a leading exponent of fixed fees, which I whole-heartedly support, BUT their service is absolutely appalling because they can’t afford to provide the support needed compared to those platforms working on an ad valorum fee.

    So whilst I agree with the concept that platforms should be charging fixed fees most are not making any or much money anyway (except Transact because it has rather higher ad valorum fees than the rest).

    I agree with Marty Y in that we have more important things to worry about than whether a platform costs 25 or 30 or 35 bps. Let advisers get on with job as the 99% care about their clients and choose platforms they feel offer value for money.

    The bigger picture is that the benefits of platforms are massive compared to the old style expensive inflexible products that existed (some still exist of course) and the cost (which in the majority is 30-35 bps’ish – and well below that for larger accounts) is hardly a rip-off.

  6. Bit rich for a network boss to criticise the concept of % charging for services to Advisers!!

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