Costs play their part in platform selection

When it comes to advisers and their platform providers there is no doubt that the costs involved play a part in the decision about whether to use one over another, but for most advisory firms, there are many other elements at play.

Adviser firms need to find a platform that best enables their client proposition Steve Nelson, the Lang Cat

Steven Nelson, consultant director at The Lang Cat, highlights: “In all the work we’ve done analysing platform charges, new business results and the work we do with advisers, we’re yet to see a direct link between cost and new business success.

“Or in other words, cost is not the key determinant of new business flows. That’s not to say it’s not important though and cost is always a factor when we work with advisers on platform research.

“Ultimately, adviser firms need to find a platform that best enables their client proposition whilst being at peace with it offering value for money in the grand scheme of things.

“Something cheap and unsuitable is still unsuitable and we don’t think people should lose any sleep over a few extra basis points if it helps enable a better set of processes and day-to-day life for the adviser firm. Clients will ultimately benefit from this in the round.”

There are also cases where cost lays no part at all. Verona Kenny, head of intermediary at 7IM, explains: “Every platform is different and, therefore, the features, and more importantly, the service that is required to managed multiple clients on a platform, may not be available with the cheapest providers.

Some consumers and financial advisers can find it difficult to shop around and switch to a platform that better meets their needs  Christopher Woolard, FCA

“As technology evolves, the cheapest platforms may also not have the resources to embed the latest innovations that can give rise to greater efficiencies, meaning that clients do not benefit from the best functionality and experience available at the time.”

Ms Kenny argues that functionality will always come first for advisers when choosing their platform provider.

“If you cannot provide the service and functionality that clients expect then the cost is irrelevant,” she says.

“Once the required functionality has been chosen, deciding which platform can support it at the best cost will be the next consideration. This is where reputation and user references become particularly important.”

Although not a cost borne at the outset, the FCA’s recent Investment Platforms Market Study outlined concerns over the difficulties faced when switching from one platform to another – particularly the exit fees incurred.

Christopher Woolard, executive director of strategy and competition at the FCA, explains: “The FCA found that while competition is generally working well, some consumers and financial advisers can find it difficult to shop around and switch to a platform that better meets their needs.”

To address the issues uncovered, the FCA is consulting on rules to allow consumers to switch platforms and remain in the same fund without having to sell their investments, and is proposing to ban or cap exit fees.

“The proposed restriction on exit fees would apply to platforms, and also firms offering a comparable service to retail clients,” says Mr Woolard. “The FCA is seeking views from the wider market about how a restriction could work, before consulting on any final rules.”

Bella Caridade-Ferreira, founder of comparetheplatform.com, which launched an online calculator following the FCA’s study, says: “Platform exit charges can vary widely. Some make no charge at all and they should be commended.

“But some do levy some kind of charge. It could be for the whole portfolio, by wrapper or even a fee for each underlying investment. It pays to check how much a switch is going to cost you.”

Some advisers claim that the current regulatory framework makes transacting some business unprofitable, which Ben Hammond, principal consultant at Altus says is leading to the oft-quoted ‘advice gap’.

He adds: “Some platforms can make it more efficient to do business when compared with non-platform business, especially for existing clients. If this is the conclusion from an adviser’s due diligence, then it could well be the most suitable place to put a customer’s business.

“Many advisers are looking at the auto or robo-advice routes for their clients, especially when it comes to events that may not require a full advice process, such as topping up an Isa.”

According to Mr Hammond, some advisers quote that around 80 per cent of their business turnover is from existing clients, and that trust wins and retains most of their business.

Furthermore, most customers looking for help with their investments or tax planning will be happy to collaborate with an adviser, providing the service is professional and the costs are competitive.

He concludes: “As with any industry, it’s all about value for money and advisers need to be aware of the need to balance functionality with cost – cheapest is not always best.”

Jenny Turton is a freelance journalist