Following this week’s publication of our Adviser Platform Pricing Guide, we focus on what adviser platforms are charging for their services. We think that the right conditions exist for platform pricing to take a further step downwards, driven by competitive pressures and technology upgrades.
The overall cost of adviser platforms has come down over the past three years
Adviser platform charges have come down since the RDR. Back then, for portfolios of £100,000, the market average was 45 bps – now it is 40 bps.
Fee pressure in the value chain
Arguably, fund managers may bear the brunt of the pressure to reduce the total cost of investing for clients, but platforms are not immune.
Some would argue that fund managers are not being squeezed enough with the exception of those active managers losing business to passive providers. Platform prices have fallen but active fund management fees remain largely unchanged.
The competition
Adviser platforms also face price competition from out-of-the-box propositions such as SEI, IFDL or Pershing. Advice firms going down this route can benefit from quasi-institutional rates and can extend their offerings by taking on platform and discretionary permissions that they can charge additional fees for. The advisory firm rather than the client generally pays the platform charges, which are likely to be in the region of 10 to 15 bps.
Look out for Vanguard storming into the D2C space too. Their in-the-works UK proposition is expected to be competitively priced compared to platforms and may well undercut them.
Technology upgrades leading to price pressure
The numerous technology upgrades in the sector may impact on prices as we move into 2017. We firmly believe that processes will become more automated and efficient enabling platforms to cut prices if they choose. However, given the high costs of upgrading, they will try hard to maintain their margins and justify their charges by pointing to enhanced functionality.
In our opinion, price reductions will continue as competition on platforms intensifies and they achieve greater scale. Tech upgrades will be a catalyst for price decreases in the longer term because platforms will become more capable of easing their prices down. But are we reaching a tipping point where widespread price decreases will follow?
With platform pricing having stabilised and, if anything, increased slightly over the last 12 months, we expect it to resume its steady downward trajectory. As a wave of platforms complete their replatforming processes in 2017, watch this space – there will be pressure on platforms to lower their prices and we think they will do just that.