Why Embark is ditching ATS' flat fee model

Why Embark is ditching ATS' flat fee model

The chief executive of Embark has explained why his company will be ditching the flat fee model once the acquisition of Alliance Trust Savings is complete.

Phil Smith said once Embark's acquisition of ATS was complete its clients would move away from a flat fee model as it was “only advantageous to high net worth investors with liquid assets at their disposal.

“It is very regressive for investors with savings of less than £500,000 and this made ATS very uncompetitive as a business."

He said the "vast majority" of retail investors in the UK had savings at a level that would disadvantage them under ATS's pricing structure.

Mr Smith said: "There are more progressive pricing models which enable you to compete at all levels."

He said Embark's pricing structure represented "incredibly high value".

Currently Embark charges its clients an annual platform fee tiered depending on the overall value of the client account.

For a personal pension the fees range from 0.15 per cent to 0.25 per cent while Isas are charged at 0.15 per cent regardless of the assets.

By comparison the ATS platform charges a flat fee depending on the accounts held, the services used and how often they are used.

An ‘inclusive’ charge on the ATS platform — designed for people who expect to buy or sell investments fairly frequently and allowing up to 35 dealings a year at no additional cost — is £225 a year for an Isa or a general investment account, £350 a year for a Sipp at the ‘savings’ stage and £440 a year for a Sipp at the ‘income’ stage.

The ‘standard’ option is for those who do not expect to buy or sell investments often with four trades included in the costs. These range from £120 a year for Isas to £285 a year for a Sipp at the ‘income stage’.

In general a flat fee model benefits those who invest large amounts of money and continually add to it while disadvantaging those who only have a small pool of assets.

Embark announced it had agreed to buy the adviser platform business of Alliance Trust Savings from Interactive Investor earlier this week (October 28).

The sale, which will carve the adviser platform out of ATS but leave the direct to consumer element owned by Interactive Investor, is set to bring about £6bn of assets about 30,000 clients onto the Embark platform.

Interactive Investor had only acquired ATS from Alliance Trust earlier this year but the future of the ATS’ adviser clients had remained unclear until this week.

Mr Smith said no client would end up paying more than they currently do after the restructure and the firm would implement price capping on their accounts.

He said: "The first duty of care we have is to treat customers fairly and the clients of ATS were sold a product with a flat pricing model so we have to be realistic."

Mr Smith said: "We see [the cap] lasting for the foreseeable future because we want to be fair to their customers.