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Pros and cons of different platform pricing models

This article is part of
Guide to Platform Re-pricing

According to Bill Vasilieff, chief executive of Novia, advisers will now face the options of a tiered basis point charging structure, where the charge is scaled according to the amount invested, or a fixed price, where the adviser pays a fee for the use of the platform.

Mr Vasilieff argues the tiered charging structure is the most clean and transparent method of charging and one that does not disproportionately disadvantage the smaller investor. He argues a fixed price charging model may disproportionately affect the smaller investor, as the charge would be levied no matter what the fund size is.

However, most tiered pricing models include a charge for the smallest clients that is larger than was taken on average in the bundled pricing model, meaning cost of investing will actually increase.

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For example, Cofunds pricing model saw a low charge of 0.29 per cent introduced for sub-£100,000 clients. Under the bundled model the average assumed platform cost rebated was 0.25 per cent.

Mr Vasilieff adds a fixed rate would not take into the account the extra levels of risk and sometimes administration required for platforms dealing in larger investments, though it can be beneficial to the very large investor where a percentage charge can be “exorbitant”.

Terry Huddart, technical communications manager at Nucleus, says for new business only, the vast majority of platforms now have an explicit charge to clients that is a percentage of assets held on a tiered basis.

This is split into two camps, he says: those that significantly augment the core charges with event-driven charges (such as switching, re-registration, transfers and drawdown) and those that focus on the core charge.

Mr Huddart says: “There are also some differences on how tiering is operated in terms of whether discounts are applied by tranche or not and also whether charges are differentiated at wrapper level or not. There is one platform that operates fixed charging.”

Mr Huddart says his analysis has shown that, with augmented charging models, clients can really be charged double the advertised core cost over a 10-year period when you take real-life portfolio activity into consideration because people re-balance, switch, pay money in, take money out and move money between providers.

In addition, an FTAdviser investigation has uncovered that clients are also often being indirectly charged on their cash balances as most platforms retain a portion of the interest offered by the account provider.

Mr Huddart says the big challenge for advisers trying to get the best price for their client is predictability and not having a situation where clients refer back to initial disclosures and are disgruntled at the extras.

“I think that across the market for new post-RDR charging structures platforms are doing it by the book and have got better at disclosing core charges, but I am not sure how clearly all of the extra charges are being disclosed either upfront or in client statements.”

The Financial Conduct Authority’s Conduct of Business book (COBS 6.1E.1) says that platforms ‘must clearly disclose total platform charges in a durable format’.