Advisers, providers and platforms are all under pressure to justify fees

HopkinsHeather

Fees were the hot topic among advisers, providers and platforms at the recent Platforum 2016 conference. The subject cropped up in every session, with each party pointing fingers at another, arguing pricing pressure should be exerted anywhere but on their own part of the supply chain.

There were calls for platforms to charge a flat rate rather than ad valorem, and speakers disagreed about which part adds the most value to the customer. The general consensus was that advisers, being closest to customers, probably have the least to worry about in the short term.

A few weeks ago we wrote a piece in Money Marketing highlighting the optimum price point for one-off financial advice as £800 and 50 basis points for an ongoing service. The findings are encouraging, as it shows the gap between advisers’ actual charges and clients’ expectations is not as wide as many people expected.

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What is more, most advisers tell us that they are now making efforts to reduce the total cost of ownership for investors. Using passive tracker funds has been key to reducing costs here.

Our recent report on passives, ETFs and smart beta revealed that 18 per cent of adviser platform assets sit in passive products, with use of such products rising rapidly since the RDR. But despite this shift, advisers and investors show a continued preference for active funds.

Some would argue that fund managers are not being squeezed enough. Indeed, Nucleus chief executive David Ferguson noted at the conference that shifts in charges have been unevenly distributed in the value chain. Platform prices have fallen but fund management fees remain relatively unchanged.

In another part of the supply chain, discretionary fund managers charge fees for their bespoke and model portfolios. There was much debate at the conference as to whether DFMs add value or whether they are simply another “snout feeding at the trough”, as one attendee colourfully put it.

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Indeed, several questions from the audience challenged their value and asked whether multi-manager or multi-asset funds might not be more tax and cost effective – in theory, if not always in practice.

Of course, cheap does not necessarily mean better. In response to a question about why platform fees do not come down to 10bps, Standard Life head of adviser and wealth manager propositions David Tiller replied that, while it might be possible to get one that just trades funds for that level of fee, it would not include tax wrappers, client reporting and other services.

We agree – at least up to a point. There is a trade-off between low price and the service and support clients and their advisers receive. That said, we expect to see continued pressure across the supply chain. As investors become more aware of what they are paying, advisers and other players will feel more pressure to justify those fees.

Heather Hopkins is director of research at Platforum