How to decide whether to absorb platform costs

Platforms have become the mainstay of advisers' investment propositions. But how should their costs be managed?

Platforms have become central to financial advisers' fund propositions. But they are currently in flux. Platform technology is changing, and neceessarily immediately for the better, as proven by the inevitable service disruptions that follow replatforming exercises.

With a Financial Conduct Authority (FCA), project currently discussing how it should approach platforms, another question has arisen: should IFAs change the way they charge clients for platforms too?

When New Model Adviser® submitted its official response to the FCA on the platform paper, we suggested a different charging structure would be worth considering: one where the adviser pays, rather than the client.

But what do our readers make of it, and how would it affect their businesses?

 

Platforms have become central to financial advisers' fund propositions. But they are currently in flux. Platform technology is changing, and neceessarily immediately for the better, as proven by the inevitable service disruptions that follow replatforming exercises.

With a Financial Conduct Authority (FCA), project currently discussing how it should approach platforms, another question has arisen: should IFAs change the way they charge clients for platforms too?

When New Model Adviser® submitted its official response to the FCA on the platform paper, we suggested a different charging structure would be worth considering: one where the adviser pays, rather than the client.

But what do our readers make of it, and how would it affect their businesses?

 

Jeannie says...

It is a bit of a moot point who benefits from a platform. Is it the client or is it the adviser? Both parties get use out of it.

Both of the platforms we work with bill us. I am pretty supportive of [advisers paying platform fees], it is something we already do in the way we are set up with our platforms. And obviously we pass it on to the client in one way or another. Our fees are very clear:'this is the advice charge; this is the investment management charge, this is the platform charge; this is what the platform part costs you.'

We are already doing that.

But I think it can get really difficult for clients to understand what they are paying for. There are not many clients currently working with advisers who are not using a platform, so clients may perhaps be used to [being charged].

Where we need to be careful is cases where clients are being shoved onto a platform out of really cheap and cheerful pensions and into investments that may be ok,  but where they would be better served staying off the platform where they were. You have to make sure you are establishing there is a genuine need to use a platform. 

As long as clients are aware of exactly what they are paying for, that is fine. If you are a platform that is adviser-only, in other words without a direct-to-consumer arm [like AJ Bell has] I do not think this is going to make a huge difference. 

But if you are a platform that has a direct relationship with clients, it might be a slightly different conversation. 

If you are a provider-owned platform, you might not be so keen because as soon as the adviser is gone, you have an orphan client to manage.

Also, the risk with having advisers pay for platforms is it might make it harder for clients to get rid of their adviser.

Jeannie Boyle is executive director at EQ Investors

The consultant view

Clive says...

I was turned on to platforms by the ultimate guru, Ian Taylor, chief executive of Transact. Transact's proposition removed the need for product providers selling enormously expensive bonds and paying advisers huge commissions. 

The products were life bonds but, in this case, a portfolio of funds of the IFA's choice. The platform might provide the warapper such as Transact's Integra Life for bonds or the wrapper could be outsourced. Either way, the cost was trivial compared to 'old world.'

It is interesting to note this was an early example of verticle integration. The product provider being the platform in partnership with the adviser. The funds are just filling. Look at the Fusion Wealth proposition. SEI provides the heavy lifting in the back office, Creative technology does most of the middle-office platform stuff and integrates (unsurprisingly) with Enable, a superb practice management system also built by Creative Technoloy. Now please tell me, which bit is the platform?

In short, the IT that supports an adviser business is becoming modular. Advisers will look for best of breed and expect, even demand, they all interact perfectly. The idea of a one-size-fits-all platform that does everything any adviser in any firm might wish for, with all the costs that comes with that, stretches my imagination a little. So when it comes to this question, I just cannot work out how you could pull out a bit of the overall IT package and ask the client to pay separately. 

Clive Waller is managing director of CWC Research

You can read Clive's full article on platform charging here. 

Top comments:

John Beattie

'This appears to be a whole lot of hoo-haa for nothing. If the adviser firms pay the platform fees, the adviser fees will need to increase to cover this cost, which will eliminate any cost saving to the client. I honestly think there are far greater issues than penny pinching or deciding who pays for what in the whole advice chain.'

Philip Adams

'Currently the cost of the platform does not count towards the 5% tax deferred withdrawal. If the adviser pays the cost of the platform and passes it on to the client through adviser fees, they will eat into the client's figure.'

Andrew Moore

'What happens if a client leaves an adviser? Who pays the platform charge then? Does the client have to disinvest or transfer out? Who pays for that work? The current situation is hardly broken.'

Dave Knight

'If the FCA stopped fiddling around at the edges and got on with work, maybe we would all be spared the UCIS/pension scams/downright criminal acts perpetrated by unscrupulous crooks instead of worrying about every last penny spent in the "advice chain."'

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