The FCA’s platforms market study covers a number of key areas with a common theme: how do platforms and the advisers that use them provide a value-for-money solution for investors?
If you browse the terms of reference, you could be forgiven for thinking the study is firmly aimed at the platforms themselves and, while I do not think this is wholly the case, I would argue it is the platforms that need to take the lead when it comes to providing a service to investors, whether this is directly or via an adviser.
There are two key costs paid by the investor that are based on a platform’s efficiency:
- Platform charges
- Adviser charges
Some would say the first one is obvious: the platform gets better at doing things, realises it can afford to lower its charge and the customer gets better value for money.
This is all well and good but platforms are actually pretty expensive to run, even if you have the most modern technology and the most highly trained staff in the industry. Remember the predictions that platform charges would fall to 10bps?
Adviser charges, whether initial or ongoing, are perhaps a bit more tenuous, but they are heavily influenced by how efficiently the platforms used operate.
If a platform allows an adviser to process a business case without filling in paper forms, produce detailed reporting instantly and be confident their clients are getting a great service on their behalf, should this not result in a lower servicing charge?
A more efficient platform should also free up advisers to spend more time talking to their clients about their goals and aspirations, rather than dealing with monotonous paperwork.
So just how efficient are platforms? A useful approach might be to look at their internal costs, and our own work with a number of platforms reveals there is a wide range. Not least of which is how much it costs to administer an investor on the platform: anywhere between £2 and £12 per year for activities such as answering the phone and updating an address.
The same is true when it comes to basic administration of an adviser on platform: anywhere between £15 to £105 just to set them up before any additional support such as system training is provided or any queries are dealt with.
This highlights just how different platforms can be, so advisers need to pick the right one(s) to ensure their clients are getting good value.
It is often said that scale is key to making a profit but, so far, this has rarely been the case. Some of the largest platforms in the industry with £30bn+ assets under administration are not able to operate at a profit, whereas some smaller, more niche platforms with less than 10 per cent of that AUA are able to return a healthy margin.
The conclusion here could be that modernisation is key. Advisers need to be aware of what a platform is doing to ensure they are operationally stable for the future. It all comes back to value for money.
When it comes to most things in life, I am a strong believer that you should concentrate your efforts where needed to bring maximum efficiency. The ability of a platform to do this and so reduce the cost of doing business is ultimately what will enable both them and advisers alike to provide value for money to investors.
Ben Hammond is senior consultant at Altus Consulting