Platforms  

Platform prices dip

Charges

Platform charges are unlikely to bottom out at 15bps in the next five to 10 years, the Lang Cat said in the report, adding it would require a 57 per cent drop in existing market rate base on a £200,000 portfolio.

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“We wouldn’t go as far as to say that it’s impossible, but for such a scenario to play out there would need to be a dramatic change. We’re not anticipating that.”

Robert Forbes, a chartered financial planner with London-based Stadden Forbes Wealth Management, said platforms will seek to acquire new assets from banks instead of stealing business from each other by slashing costs.

He said: “I do, however, think that 15bps is a fair custody charge and just enough for platforms to remain profitable.”

Another 18 per cent market level reduction over the next five years is also unlikely, for a host of reasons according to the Lang Cat – profit margins being one of them.

The study said: “The margins left for continued price cuts are not huge – there’s a fine balance on display. Profitability, for so long the Holy Grail for many in the industry, is too precious to gamble.

“Commercial wiggle room is not at a premium. And we don’t see anyone likely to artificially move the bar to buy market share, and if they did, we think it wouldn’t work.”

The sector is also unlikely to experience a catalysing event akin to the RDR that will drive prices down, the Lang Cat said, adding the platform charges are seemingly moving towards homogenisation.

In addition, there is likely to be more focus on the suitability of propositions to financial planners and their clients, while the trend of platforms going down the vertical integration route to influence asset flows will continue – having a greater impact on total cost of ownership than custody charges, according to the financial services consultancy.

What is more, instead of trimming custodial charges, platforms might explore making further savings from asset management charges, the Lang Cat said.

The report added: “We challenge the assumption that it’s a given that prices have to constantly come down. What if price in this sector is starting to find its natural, sustainable level?”

The Sunset clause, which comes into force on 6 April 2016, requiring platforms to pass on revenues from fund managers to clients, will be a challenge to the three former fund supermarkets, Cofunds, Old Mutual Wealth and FundsNetwork.

The report said: “At best this will prove to be revenue neutral, but we suspect 2015/16 accounts might prove the change to have been a bit more painful. If revenues are falling it’s very difficult to cut your prices further.”