What will the impact be of Alliance Trust Savings’ announcement that it would be changing its charges?
Alliance Trust Savings is the only adviser platform to offer a flat rate fee – meaning that regardless of the value of assets in the client’s portfolio each client is charged the same fee.
Despite this straightforward charging structure, choosing between the three options offered can be tricky. I spent over an hour in front of Excel spreadsheets crunching the numbers. The results should help advisers using Alliance Trust Savings make decisions on which pricing structure works best for different clients.
Each wrapper held commands a separate account charge and a fee is also charged per transaction. Two charging models are offered on the platform – standard and inclusive – and the price charged on these can be optimised depending on the frequency of trading in each wrapper. In this article I place the microscope on each of these models and show exactly what the changes mean, and who will be better or worse off.
The long and the short of it is:
- The price changes don’t equate to a price hike for most customers using the standard model.
- However, the price hike for the wrappers makes the inclusive model more expensive in most cases.
- The new inclusive model makes sense for clients with more than two wrappers and using model portfolios. (Most Alliance Trust Savings customers don’t fall into this camp but this clearly reflects the ambition of the platform to encourage consolidation of assets on the single platform.)
Wrapper charges are being increased across the board in the standard model and for direct clients, with the £90 previously charged on both the Isa and GIA wrappers increasing to £120.
The SIPP wrapper charge is increasing by 17 per cent to £252 per year. On the face of things, this appears to most as a price hike, but the £2.50 reduction in the transaction fee coupled with the first 4 transactions made each year coming free of charge actually means that the majority of those using the standard model will see a reduction in their platform fees.
The chart below shows the price difference for an Isa wrapper as the number of annual transactions increases. As long as three or more transactions are made in the year, the new pricing structure works out cheaper at all levels.
Similarly, we can chart how this will affect those holding both an Isa and a Sipp wrapper on standard terms. Charges start to become cheaper for those making 11 or more annual transactions on the platform.
Wrapper charges are also significantly increasing on the inclusive model. As reported by Money Marketing earlier this week, ISA and GIA charges are increasing by 50 per cent up to £225 and the Sipp wrapper charge will go up from £275 to £350 per year.
Transaction fees are remaining at £6.25 per trade, but advisers will now only get their first 35 trades of the year free, down from 37. The charge for Alliance Trust Savings’ model portfolio service is increasing 40 per cent to £120.
Model portfolios were launched on the platform earlier this year and the service includes access to model portfolios on the platform as well as no additional charges for portfolio rebalances
With charges either increasing or staying put, the charts below show the difference in charging for both an Isa and Sipp wrapper depending on the amount of annual transactions.
Despite the price increases, Alliance Trust Savings still remains competitively priced with the £225 Isa wrapper fee representing 0.16% of the average £140,000 Isa on the platform. The average advised Sipp on the platform is £400,000 so the £350 wrapper charge would only be 0.09% of the portfolio size.
However, running a model portfolio across multiple wrappers can quite quickly build up the number of annual transactions to over 100, and the model portfolio charge includes the cost of all rebalances. With this service now costing £120, advisers running a model portfolio will be best off taking out this option if they plan on making 55 or more annual transactions.
Inclusive wrap charge
The final change to come out of this pricing announcement will be the introduction of the inclusive wrap charge. For £700 annually each client will have access to an Isa, GIA, Sipp and the model portfolio service – a £220 saving on the rate card price of each of these options. On the old pricing, however, this would have cost £665 all-in so this represents a £35 increase.
The chart below shows the old and new cost of running all three wrappers (minus the model portfolio service) compared with the new inclusive wrap charge. Assuming fewer than 35 funds are bought/sold each year, the inclusive charge will cost £700 for all portfolio sizes and transaction levels.
At present, Alliance Trust Savings customers hold 1.3 wrappers on average, and the inclusive wrap charge has been designed specifically to encourage advisers to use the platform for more of their clients’ accounts. Alliance Trust Savings seems confident that these changes won’t act as a deterrent to any of their advisers, even waiving exit charges up until 27 January for those who wish to take assets elsewhere.
The flat rate fee is still the most cost effective option for larger portfolios and not something that has been largely challenged in the adviser platform space, only Aegon’s charge cap of £1,215 is somewhat comparable.
Going into 2017, we will wait and see what effect these changes will have upon the platform’s sales flows and assets under administration, and if the platform can justify the price rises by delivering improved levels of service.
Andrew Ashwood is a research associate at Platforum