I have some incredibly exciting news. This is an exclusive offer which will make me the cheapest place to buy your new iPad.
After much negotiation, I can provide Apple iPads at a knock-down price of £1.99. To claim your iPad, send a self-addressed envelope and a cheque for £500 to cover administration costs and services. What a deal.
Okay, so this might be a little far fetched and you may be wondering what this has to do with anything. However, I fear that the current noise surrounding platform pricing isn’t quite that transparent.
In the past few weeks, we have seen lots of information about the deals that have been struck between platforms and managers and how this offers a competitive edge. I don’t feel that platforms are being quite as transparent as they could be.
Clearly, the net cost of accessing a fund is a consideration, but in reality it is the total cost of access that is important. As new fund share classes emerge and pricing deals become more transparent, there is a danger that the emphasis switches to focus on just the net fund costs.
We’ve recently seen a number of platforms announce not only revised platform terms, but also terms agreed with fund managers.
In fact some platforms have said that they have negotiated better terms worth five basis points or even 10 basis points versus the competition.
I can clearly see how customers can benefit from platforms that use their scale to get better deals – I wholeheartedly support this. However, when I analyse the numbers I can’t see there being much of a difference.
For example, if we take a £50,000 portfolio which is fully invested into the Invesco Perpetual High Income fund (FundsNetwork’s top selling fund in 2012) - combine this with numbers provided by platform industry specialist, Mark Polson - this is what I calculate:
| Cofunds | FundsNetwork | Skandia | Standard Life | |
| Net fund cost | 0.75 | 0.75 | 0.67 | 0.71 |
| Platform cost | 0.37 | 0.34 | 0.43 | 0.40 |
| Total cost | 1.12 | 1.09 | 1.10 | 1.11 |
Surprising isn’t it? It doesn’t seem such a benefit overall. This isn’t meant to be a sales pitch for FundsNetwork, but I wanted to highlight the impact these charges have on the total cost paid by the end investor.
In reality, it makes just a few basis points of difference. A one basis point advantage on a £50,000 portfolio equates to just £5. Clearly the larger the portfolio, the more significant the difference, however, the picture doesn’t change much.
As an example, the analysis I have provided is limited – it has been carried out on a single fund and a handful of platforms. The key is that there needs to be a greater focus on the total cost of ownership.
So where does this leave us? I feel that there needs to be much more focus on the total cost of ownership, which should be the most important consideration for advisers when using a platform.
Finally, rather than seeing the cost for the customer falling we are actually seeing a redistribution of this cost across the value chain, which will continue to dominate the landscape for platforms.
We need to remember that price is truly only an issue in the absence of value.
Ed Dymott is head of business development at Fidelity Worldwide Investment
