Declining annual fees for holding investments through platforms is “generally good news for consumers” but many operators could be “pulling the wool” over the eyes of consumers with Ryanair-style pricing models, Nucleus has warned.
Terry Huddart, technical communications manager of Nucleus, said platform clients are often paying much more than what is advertised due to additional fees levied for moving money and switching funds or investments within the portfolio.
Mr Huddart added that comparison tools on the market most often only focus on “core charges to create basic price rankings”, which he said makes it “impossible to calculate the true platform costs”.
He said: “We’ve all experienced situations of paying low advertised headline prices for a service that we subsequently find to our expense that, once a captive, things essential to the service or experience cost more.
“Ryanair is an oft quoted example, the price of drinks or food once inside an outdoor event and internet service providers suddenly hiking the cost to ‘anytime’ from restricted packages are other examples of opaque and extractive pricing strategies.”
Mr Huddart’s comments echo those of Fidelity head of business development and strategy Ed Dymott, who told FTAdviser sister title Financial Adviser earlier this year that the ban on platform rebates could make it more difficult for advisers to compare actual costs.
Mr Dymott added that the “fullness of unbundling” could lead to a situation similar to low-cost airlines, which have so many additional charges at the point of sale that “it made it difficult to compare prices”.
Many platforms have reduced their pricing in the past year in the lead up to the Retail Distribution Review and in the wake of an announced ban on rebates paid by fund managers to platforms. Mr Huddart said a total of 11 platforms including Nucleus itself had changed their pricing model since September 2011.
Nucleus recently revised its charges, reducing rates by as much as 15 basis points for larger portfolios worth more than £500,000 and bringing the portfolio value threshold for its 0.15 per cent pricing floor down to £1m, from its previous level of £5m.
Others to change their pricing structure include 7IM, which revised its model in the wake of FCA proposals on platform pricing to remove its waiver on fees buying own brand funds, which would have fallen under the watchdog’s ban on cross-subsidies.
The firm launched new share classes for its funds which will be 25bps lower than the current institutional share class, with the the platform fee for investments in 7IM funds increasing from zero to 25 basis points.
Cofunds was the first to launch its unbundled structure in September 2012, introducing a tiered pricing model ranging from 0.29 per cent for investments up to £100,000 to as low as 0.15 per cent for investments of above £1m.
Mr Huddart said the two key issues in the market at the moment were clients often paying “much more than what’s advertised” with ultimate costs being “impossible to predict”, and platforms “accumulating a future sustainability risk” on unstable and non-compliant pricing strategies.
Mr Huddart said: “By definition clients do things with their financial portfolio; things like move money, switch investments and withdraw money.
“Today, both in platforms, and in non-platform products, events like these can attract charges meaning that what clients actually pay can bear little resemblance to the headline ‘core’ charge.”
