Platform fees tipped to drop 6 bps in ‘fractured’ market

Platform fees tipped to drop 6 bps in ‘fractured’ market
 Credit: Dominic Lipinski

The fees charged by platforms are set to continue decreasing at the same pace, according to the Lang Cat, with touted estimates of a six bps decline over the next five years.

Steve Nelson, insight director at the research and consultancy firm, predicted the average market cost of platform fees would drop by just above a basis point per year for the next five years.

He said: “Five years ago, we predicted that mean average market pricing would reduce by just above a basis point per year for the next five years.

“That turned out to be true — in 2015, average prices would have been around six or seven basis points higher than currently — and we expect this to continue at the same pace for the next five years too.”

Figures from the Lang Cat showed the average cost of holding £500,000 on a platform, based on a wrapper with a pension accounting for half, and a quarter used for both an Isa and a GIA, was 0.27 per cent currently, expected to fall to about 0.21 per cent by 2025.

It is more expensive the smaller the amount of funds held on the platform. Advisers pay an average of 0.4 per cent for £50,000 and just 0.16 per cent for £2.5m, but the Lang Cat expects the costs to fall evenly across the board.

Mr Nelson said there were a number of reasons for why the platform space was not set for significant price disruption, and instead would continue at the same place.

He said: “The sector simply isn’t in the right place to drive forward meaningful disruption in terms of price, with many mainstream platforms still resembling the older operating models of products/insurers where many tools and services outside of core custody and investment administration come with extra costs. 

“The Lang Cat’s adviser research shows that such services can be highly valued but this doesn’t create the right environment for imminent disruption.”

This was also partly down to the “fractured” nature of the market, Mr Nelson said, with core providers, the vertical integrators, white-label offerings and ‘focused’ solutions all playing a part. 

White-label solutions companies were the most likely suspects to cause downward pricing pressure, but this was “in the abstract” of advice firms’ minds and still had low transactional levels.

Mr Nelson also thought the regulator was not poised to drive pricing change, pointing to the City watchdog’s Platform Market Study which had “been and gone without any notable changes” to platform pricing models, while “special pricing deals” between advisers and platforms were “not going anywhere”.

Downward fee pressure across the value chain — advice fees, asset management charges, platform costs — has been an ongoing theme across the industry over the past few years.

Further analysis from the Lang Cat last month predicted the total cost of ownership for clients’ centralised investment propositions would drop by 50 bps over the next five years.

This was primarily due to a 30 bps decline in fund management fees, an area most commentators agree has the most room for downward price pressure, while advice fees look set to fall from 0.81 per cent to 0.6 per cent.