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Embark chief predicts battle of costs on horizon

Embark chief predicts battle of costs on horizon

Embark Group chief executive Phil Smith has predicted the total costs clients pay for their investments, pensions, and advice will face a tightening squeeze over the next two years.

Speaking to FTAdviser, the CEO of the parent company behind Sipp providers Rowanmoor and Hornbuckle, said: “I think the next two years will just be a battle of total expense ratio.

“Whether it is the Sipp cost, or the platform fee or the discretionary fund management fee, or it is the advice fee that wraps around it.

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“The big news in the next two years will be all about the TER for the client, finding a space where you have a bit of an advice gap potentially...but it will be predominantly about price for the majority of the market.”

Mr Smith said the battle of TER had “been brewing for a number of years”.

“Fundamentally it has been the same for 20 years - people aren’t saving enough early enough to get a tax advantage of long term investment and pricing products in that space.”

Mr Smith said at the top end of the market, however, for the genuinely high net-worth clients, who are traditionally buyers of Sipp and Ssas products and usually have complex assets, people will continue to pay for specialist skills.

According to data from Morningstar, among actively managed equity funds available for sale in the UK with assets under management over £10m, the key investor information document ongoing charge ranges from 0.01 per cent to 3.9 per cent.

Martin Tilley, director of technical services for Dentons Pension Management, said TER and costs have become very important since the rise of platforms.

“When you have a platform-based market it is difficult to differentiate between other features of the product you have.

“For example for a platform that offers 600 funds, someone else has a platform of 600 funds, someone else has a platform of 600 funds, there isn’t a great deal of service issue, either it works well or it doesn’t.

“And it should work well so as long as it works well you don’t have a differentiator there, the only differentiator you’ve got is the cost.”

But Paul Matthews, UK and Europe chief executive at Standard Life, said employers, advisers and customers are seeking flexibility, transparency, choice, and performance, adding “there’s lots of examples where people will pay a premium for a premium offering”.

“There will always be people that look for low cost in any industry. It is about offering choice to customers and advisers.

“IFAs are typically more and more looking for richness of platform and want to make sure they can deliver portfolios and valuations. They are looking for quality.

“Historically people have used a lot of supermarkets and today people are looking at wraps - for more functionality.”

Ian Mattioli, chief executive of Mattioli Woods told FTAdviser the group believes long term the industry will start to see total expense rations reduce.