Platform pricing is just one big pantomime, but the wars going on between operators are going to be a critical determinent in the development of a number of propositions, according to Damian Smyth, head of intermediary sales at Alliance Trust Savings.
Speaking to FTAdviser, he began by stating that the industry is locked in a back and forth between how much platform pricing matters, with the new challengers in the market shouting ‘oh yes it does’, against the legacy players screaming back ‘oh no it doesn’t’.
“I think it’s clear from the Widow Twankeys out there that the general view is that it’s not a key differentiator, they repeat that almost daily so it must be the case.
“However what people say and what they do can often contradict. When did a platform last put it’s prices up after all? We saw a spike after RDR, but it’s been cut, cut, cut ever since.”
Mr Smyth compared the introduction of ‘superclean’ preferential deals to a handful of magic beans being thrown out to the children in the audience.
“You can’t take issue with the magic beans, if they are funds you want and it’s at a discount, so be it; the client wins.
“However if you only get access via a more expensive ticket down the front you need tread with care,” he pointed out, questioning whether anyone really values an extra, say, £5,000 from reduced fund fees over 10 years, if that comes at a cost of £7,000 in additional platform fees.
Against the backdrop of pricing changes in the market advisers have often signalled ambivalence about bespoke share classes, with one recent survey suggesting most would instead prefer easy to re-register simple ‘clean’ share classes to be offered by fund groups to all platforms.
Mr Smyth said it was for him or other platforms to determine “what is important to clients or their intermediaries”, but added that it was important for advisers to consider why platforms might be changing charges and what it means for their proposition.
“There is one other stakeholder, us, the providers. You’ll have to take my word for it, but price matters on our side of the fence, it has a real relationship with our revenues and the sometimes distant cousin that we call profit.”
Mr Smyth explained that some manage it by cross subsidy, some ensure they lose nothing on the small clients - the approach to which he admits - some start cheap and hope the client grows, while some cut costs a few years in.
Earlier this year, Alliance Trust changed its charging structure in a move that analysts said left them more expensive than a number of peers for those with sub-£100,000 investment pots, but that the platform retains a competitive edge thereafter.
“Platforms and wraps are all at different stages in the life cycle and that in isolation is no guide to future success, but the overriding question has validity.”
He predicted 2015 will see the nitty gritty of due diligence starting to challenge some core central premises, like routes to profitability, ongoing investment in technology, five-year plans, exit strategies and how much market volatility can revenues take.
“So the next time a big platform tells you ‘price doesn’t matter’, it’s worth remembering that they should probably add ‘...to you and your clients’, because it certainly matters to them. Caveat Emptor.”
peter.walker@ft.com
