Platform and dealing costs can vary from firm to firm and
could have an impact on both clients’ income and your bottom
line. Ian Horne speaks to three advisers to find out how they
compare costs and the extent of their effects
Simon Torry – CEO,
SRC Wealth Management
As far as platforms are concerned, price is not the only thing we’ll look at but it is one of the key factors. We’re looking at functionality too, but we’re aware that platforms are primarily tools for advisers rather than clients; that’s why we’re mindful of costs.
We currently use Nucleus, Alliance Trust Savings, James Hay and AJ Bell. We constantly review our platform selection, and this involves staying up-to-date with Lang Cat reports as well as anything mentioned in the general press. We also outsource some of our work to paraplanners, and if they provide good solutions, we’ll consider them too. However, we don’t want to be working with an endless list of platform providers, so we’ll only add a new one if it really stands out.
When it comes to platform pricing, some prices are distinct and separate, whereas other dealing charges are bundled together. We’ll take this into account when assessing costs, as well as the fact that certain platforms charge on a percentage basis and others on a fee basis.
Platform costs don’t necessarily play a huge overall role, in terms of client fees. I’d also say that some platforms are quasi-product providers now anyway. For drawdown and SIPPS, some platforms are cheaper than going direct to the provider, so it’s hard to justify not selecting them.
In terms of functionality, most clients like to see their investments and keep them in one place. They essentially just want to monitor their investments. With that in mind, while price is not the be all and end all, we would disregard a platform out of hand if their prices became or were too high.
Michael Carrick, Founder,
Carrick Financial Management
A few years ago I spoke to a compliance person who said I needed to know about every single platform on the market. If you try to take the time to understand each platform properly, and become familiar with how to operate each one, that becomes an impossible, perhaps even silly task. That said, we have a basic filtering process when selecting platforms, and anything that is too pricey will be dismissed early in the process. Once we’ve whittled down our options, we use our own spreadsheet to compare costs, which details the underlying cost of the wrapper and other vital information.
The excel sheet is straightforward, and we use it to detail the amount that a client has invested across all wrappers. From here, we can work out which platform gives us the best price. Client needs, however, remain essential to the selection process. We need to look at the client’s needs, and what they want from the platform. Some will want something they can interact with, and will be content to pay slightly more, whereas others may never access the platform directly.
I would say, considering that we filter out overcharging platforms at the beginning of the process, that our choice of platform has no real impact on the fees that clients pay. You have to ask if 0.1 per cent or 0.05 per cent makes a significant difference to a client. Those are the margins we’re looking at. We’re also aware that costs have to exist whether we like them or not. There are so many financial gurus out there telling people they can lower costs at every opportunity. While it is positive that people take greater care over their finances, we are also aware that a race to the bottom in platform and advice fees would not result in the best outcomes for the profession, or even the clients.
Colin McGugan – Founder,
Our paraplanners provide the bulk of our due diligence. This involves the completion of an internal comparison table, which is updated annually and reviewed quarterly. We use this to compare information such as costs, assets under management, the financial strength of the provider, platform tools and available investments. We source information that is widely available, as well as from due diligence questionnaires.
A competitive price is arguably the most important thing for us, provided that a platform is functional, secure, and effectively does its job. We use Aviva’s platform for a lot of our funds, but we also use Standard Life, AJ Bell and Cofunds.
We will also consider the administration and service being provided, as this can reduce our costs as a company when platforms provide greater efficiencies. The platform cost itself does not have an impact on the cost charged to clients, but the cost savings we have achieved through increased efficiency are reflected in the hourly rates that our charging philosophy is based upon. Although we have not attempted to negotiate any discounts from platforms across the board, we have found that deals can be negotiated for individual clients. Aviva have proven to be very good in this respect.
Looking more broadly, we recently became directly authorised and now have a research criteria and our own investment processes in place. To add to this, our back office system, Intelligent Office, ensures that the time and financial costs involved in investment are reduced, and maintenance becomes simpler. All of this minimises costs for clients, and we provide them with documentation that provides insights into our fees. It’s a positive step to show that our charges aren’t arbitrary.
Unlevel platforms – Average effective rate over time by portfolio size and scenarionlevel platforms – Average effective rate over time by portfolio size and scenario
Source: Platforum, Nov 2016. Note, the slight increase in the average effective rate for portfolios at £50,000, £100,000 and £250,000 over the last year can be attributed to one platform introducing a £120 SIPP administration fee.