Why advisory platform pricing needs a revamp
Financial software
Posted by MoneyController on 03.11.2021
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Platform pricing should be viewed with a new perspective. The adviser platform market has many difficulties that stem from the FCA’s shared view that they’re financial products like mutual funds. The premise suggests that all advisers have to do is select the most appropriate platform for their clients based on cost and feature comparisons.
That seems plausible if the selection process depends on client suitability criteria. Often, though, advisers primarily benefit and use platforms, not the clients. Platforms help the adviser perform investment functions like record-keeping, tax income and gains reporting, buying and selling, performance reporting, and MiFID II fees and charges reporting, among others.
Platforms helped reduce advisers’ workload, as they manage portfolios with more than a dozen funds in different tax wrappers. They’ve also made adviser charging easier, enabling better, more efficient, and cheaper services for the client’s benefit.
What platforms cost
You have two price considerations: the price that most pay and the rate card. As in any business, many platforms are willing to strike a deal with you. That said, it increases opacity and makes it difficult for you to survey the market. It isn’t in your or the platform’s interest to share the discounts.
Many advisors also respect confidentiality since they know that their discount is at the expense of some other firm paying more. Though discount deals help drive prices down, you won’t know how much your clients would pay if you switch to another platform.
Platforum suggests that average prices are five basis points below the rate card, after comparing platform assets and revenues. Accordingly, they think that platforms charge an average of 24bps, paid mainly by clients.
What if advisers had to pay?
Advisers have helped drive down the average clients pay for platforms. That said, advisers use platforms more than clients.
An adviser managing £10 million of assets would have to pay £240,000 per year. That suggests that an advisory firm with £100 million of assets under management would pay a hefty £2.4 million annually. Even if the rate decreases by half, that still represents a large sum of £1.2 million. That could result in fewer platforms, and advisers would be much more efficient.