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.
“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.”