Platform view: Fund prices pressured, not platforms

It feels like the media, advisers and other commentators have been debating adviser platform pricing pretty much constantly for the past five years or so.

Those discussions have included quantum, complexity, opacity and the downright outrageous. While some argue value over price, others seek to scrape it to the bone. Some organisations have even made a huge thing about being super-cheap and then raised their prices as soon as people started to use their platform in anger.

The bottom line is that platform charging in the advised market is well known and, now that the regulator has eradicated most of the filthier behaviours, well understood. But this hasn’t come for free. Specialist consultancy Altus reported last year that average fee revenue – all-in fees as a percentage of assets under administration – had fallen by about half to approximately 0.4 per cent and shareholders have borne a world of pain.

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Now though, partly fuelled by endless comparison tools, it feels to me like this is a pretty competitive market. A market in which a small single-digit variance in fees might result in an adviser choosing one platform over another for the bulk of his or her clients. Much like the rest of the economy, this sector knows what competition feels like.

But we are told that platform pricing is first up for the big post-transparency squeeze. Pricing will inevitably edge downward as successful businesses find more scale and other models collapse.

But when I consider where pressure might emerge, I turn to the largely oversupplied, brutally opaque and frequently underperforming retail asset management sector. Not infrequently, this is the same sector urging a greater squeeze on platforms.

I have two problems with this analysis. First, like much of the life industry, much historic competition in the sector has been focused on the effectiveness of ‘soft’ distribution payments.

Second, no one seems to really know where the pricing of retail asset management is starting from. The meaty issue is: where is value being added? And for what risk?

We all know that retail clients can buy UK equity exposure for roughly 15 basis points (bps). Why would people be advised to pay in excess of 90bps for the same kind of thing? It can only be because, on a risk-adjusted basis and taking account of potential capacity issues, the active fund will win out.

Where this is demonstrable, I’d expect to see pricing firm up and would even encourage it to rise where there are volume constraints on a consistently good fund. Where it is not, I’d expect to see pricing fall off a cliff and fund closures or mergers abound.

And this is before we get anywhere near the ‘super clean’ chat. Unless I am missing the point, it is intended that this will force prices down (on average) in return for some distribution influence. It remains to be seen how effective this might be or how this squares with the bias-related due diligence obligations the FCA has imposed, but it doesn’t feel likely that discounted share classes will nudge prices up.