Price is not everything when it comes to selecting an investment platform despite a fall in the cost of the service over a five-year period, according to a report from consultancy the Lang Cat.
In Platform Pricing Prophecies: Past, Present and Future, the financial services consultant found flows into platforms now account for around 83.72 per cent of advised retail investment – with investors paying up to 18 per cent less in custody costs today than they were in 2011.
For clients with portfolios of £200,000, close to the £190,000 average, the typical platform custody cost has dropped from 0.38 per cent to 0.31 per cent, according to the 16-page dossier.
However, the Lang Cat research found no evidence pointing to a disproportionate amount of assets flowing into cheaper propositions.
Instead, more assets were being invested in the more expensive platform solutions for a time, but it has evened out towards the average.
The report said: “This suggests that advisers are, on the whole, choosing solutions for what they pay other than price, which we’ll call suitability here.
“Clearly this isn’t proof. However, our strong belief is that advisers don’t just randomly move client money around without figuring out (through due diligence) that it’s the right thing to do for clients and their business requirements.”
Meanwhile, the average cost across the market for £100,000 – the most commonly held portfolio size according to the study – and £500,000 portfolios have been reduced by 6bps and 5bps to 0.36 per cent and 0.45 per cent respectively.
For Dennis Hall, chief executive of London-based Yellowtail Financial Planning, price is not paramount. Instead, platforms that have the desired asset classes and funds are high on the list of priorities.
He said: “The cost of moving from one platform to another and the time it takes for the process to be completed is not desirable. You can’t buy or sell assets when they are in the ether.
“If you react to every single change a platform makes you will be creating even more work for yourself, which somewhat defeats the purpose of using a platform in the first place.”
Among the key downward forces on custodial fees is the RDR.
During 2011 and 2012, the RDR introduced explicit charging, forcing platform providers to cut their charges to compete with rival firms that had already adopted the fee model, according to the report.
Other contributing factors outlined are competitive pressure, focus on due diligence process and significant migration of assets to platforms.
The culmination of these factors have led to a fall in the market rate by 6bps between 2011 and the end of 2012, the Lang Cat said in the document, adding: “Since then, things have slowed down with a net drop of 0.02 per cent or 2bps in the market rate, despite there being a veritable slew of pricing announcements.
“It means that in the past three years, price cuts have been more about moderate strategic adjustments than ground-breaking market shifts.”