Advisers and investors are not short of choice when it comes to platform services so it is no wonder companies are trying to distinguish themselves by price.
Hence the past three weeks of discussions surrounding which platform has the greatest buying power and which can get the cheapest price from fund managers. These so called ‘super’ share classes have been demanded by many but have been successfully obtained by nobody as yet.
It is not a price war yet but the sparring has definitely started and is likely to continue for some time. Price wars are not new to other industries and one of the most notable examples was between Amazon and Walmart, which battled for four years to sell books cheaper than the other. Whenever Walmart cut its prices, Amazon did too.
The end game is the customer gets a better price but there isn’t a price advantage. From an industry point of view, unless a single platform can exert unrivalled buying power, a price war is pretty much a zero sum game in obtaining a true price advantage.
However, this debate isn’t yet about the cost of accessing the platform, or even the total cost of investing. Instead, it is just about the price of fund manager products available via said platforms.
Fund platforms are quite literally the Tesco’s, Sainsbury’s and Asda’s of the financial services industry, going back to their fund supermarket roots. I’m not going to attempt to stretch the analogy to say that the fund managers are the poor Welsh sheep farmers selling their product at a loss, but they clearly are the target.
So where does this end up? Firstly, there are many platforms of equal size and scale which could attempt to use their buying power. This clearly will end up in the Amazon-Walmart situation of trading price – a race to price uniformity.
I suspect we will also see some platforms constrain choice to try and drive a better deal. Guided architecture is not a new concept, but, where in the past it was used to get a better level of rebate, it will now be used to get a better price for the customer.
In principle, fine, but in practice, it doesn’t always work. Look at the examples where there are must have products – where does the pricing power sit between Coca Cola and Tesco? There will be some funds in our market which no matter how restricted the solution the price will be less negotiable. If the price being requested isn’t right, I’d expect some providers to consider removing products from the shelves. Walmart has just stopped selling Amazon’s Kindle in a move that continues their competitive duelling.
The most interesting aspect about the talk on price is that few platforms are focusing on their own business model. Amazon and Walmart competed on price by cutting their own margins, not just those of their suppliers. I’m all for increased competition and we should all be striving to deliver better outcomes for customers, however, I’m not sure where this ends up. There is so much focus on price, you worry that everyone has suddenly forgotten about the value we should be delivering. The focus on fund manger pricing is unlikely to be a sustained competitive advantage for any one platform.
What value do you add for your customer? What price is the customer willing to pay? It’s time for platforms to focus on their own business models rather than that of others.
Ed Dymott is head of business development at Fidelity
