Fund fees crackdown eased pressure on platforms 

Earlier this week, the Financial Conduct Authority revealed that it was going to examine platforms to find out if there is enough price competition in the market.

This comes as a number of platforms have hiked their prices over the past six months, prompting questions about whether the regulatory spotlight on asset managers has shifted attention away from the platform industry.

According to consultancy firm the Lang Cat, seven adviser platforms have tweaked their prices over the past six months, of which four have lifted their fees.

While some players have said platforms have embarked on price rises to cope with the overall cost of running the business, one expert said the pressure on platforms has lightened due to the clampdown on the asset management industry.

David Tiller, Standard Life’s head of adviser and wealth management propositions, said this is the first time since platforms were launched a decade ago that the trend has been towards price rises, rather than cuts.

Speaking to FTAdviser, Mr Tiller said: “These price increases clearly link to the cost of the some of the technological changes that are going on at the moment.

“In truth, it’s a dose of realism about the ongoing costs of running a platform.”

The propositions head said platforms want to make sure they are on a sustainable footing and are becoming more focused on how to run a business.

This comes at a time of mounting pressure on the financial services industry to cut costs for consumers, with the Financial Conduct Authority criticising fund groups for their weak price competition. 

While the FCA was not specific about platform fees in its asset management report, it is currently looking to analyse the impact platforms have on value for money.

Mr Tiller said platforms have underestimated the need for constant ongoing development; "the market doesn’t stand still and if you leave it for several years then you find you have drifted so far that you’re faced with a massive technology build”.

For the advisers using that platform it will lead to a hefty amount of disruption, he added.

Barry Neilson, business development head of platform Nucleus, said recent price increases are a recognition that the business models of these platforms are under quite a lot of pressure.

“Despite the growing scale, some of the platforms are struggling to get to a point of profitability.

“It also reflects the need to invest more than was anticipated in the technology, particularly in an environment where user demands are getting even more sophisticated.”

Mr Neilson said platforms now need to invest very heavily in their propositions, adding however that Nucleus “does not anticipate a scenario” where it would have to rise prices.

Rather than an upward trend, Mark Polson, principal at the Lang Cat, said this “nip and tuck” was more about aligning costs across the platforms, "seeing the distance between cheapest and most expensive platform narrowing”.

Average platform prices

Source: Lang Cat

Platforms which have increased their prices over the past six months include Elevate, Alliance Trust Savings, Ascentric and James Hay, while Nucleus, Transact and AJ Bell have all made cuts.

Platforms need to start putting some investment behind creaky IT architecture and poor back office processes. Dan Farrow

Mr Polson said this was creating weaker price competition, but pointed out that many advisers are increasingly realising they can secure commercial deals.

While he said it was true that many platforms are making big changes to their propositions, he said he didn’t think these businesses were naïve about the costs.

The Lang Cat boss also pointed out that platform fees are by no means the biggest part of a client’s overall cost, saying the industry has collectively driven down the cost of platforms over the years.

He also said the mounting pressure on asset managers has in turn lightened the focus on platforms. 

“If you’re looking to make a big difference to the total cost before any advice charges, then we need to dig out the asset management study and start thinking about fund costs.”

Dan Farrow, director of SBN Wealth Management, said: “Platforms have to be mindful that an increasing number of advisers are now looking at the fixed fee offerings, as this makes sense for clients with £100k plus funds under administration.

"Also, platform providers have made easy money in this market for a number of years and need to start putting some investment behind creaky IT architecture and poor back office processes, before they start raising prices."

katherine.denham@ft.com