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.”
Nonetheless, a reduction in platform charges is likely to happen in the future – albeit at a moderate level, according to the report.
It said that a year-on-year market drop of about a basis point and a half, a pattern that has been apparent since 2013, is likely to occur and settle at around 30bps in five years, and 25bps in 10 years.
There has been talk within the sector that platforms will follow in the footsteps of Alliance Trust Savings and implement a fixed fee model, according to the white paper.
The report said: “If they do, however, it means having to deal with the tricky marketing message of price increases, whereas ad valorem avoids that issue.”
Revenue
Mr Forbes said: “Maybe the fixed fee model will work, maybe it won’t. It is hard to say, but I am sure platforms will keep a keen eye on how businesses such as Alliance Trust Savings perform over the next 24 months.”
The Lang Cat has said it expects to see more price capping, but this strategy is also not without problems. A low cap level could prove to be detrimental when it comes to revenue – forcing platforms to consider hiking their custody charges.
The report said: “But how a platform arrives at the conclusion about how much revenue is enough is an interesting question. And, a platform will always need to have a high proportion of customers below the cap level to allow revenue to increase – because if they’re all above that level you are effectively doing fixed charging and in a cul-de-sac.”
Myron Jobson is a features writer at Financial Adviser
Key points
For clients with portfolios of £200,000, the typical platform custody cost has dropped from 0.38 per cent to 0.31 per cent.
Platform charges are unlikely to bottom out at 15bps in the next five to 10 years.
Platforms could follow in the footsteps of Alliance Trust Savings and implement a fixed fee model.
