Vertical integration has failed to drive down the cost of investing through a platform, a report by the Lang Cat has found.
The report uncovered that 150bps charges for platform and investment – without the advice – is “commonplace”.
It predicted that market pressure from new entrants such as eVestor could push down prices but questioned how incumbents could react.
The report said: “The advised platform price war has never really happened. It’s looking ever more likely though and the question of how well many current players are placed to react isn’t going away.
“All that said, it’s also important to acknowledge that no one in their right mind enters into this process lightly, so we could be looking at more opportunities being created by forced sales, and shared underlying technology driving smaller scale acquisitions and mergers.
“We don’t foresee many instances of either though. In general, there is too much pain for not enough gain.”
The Lang Cat’s analysis of platform charges showed short to medium term pricing changes are proving to be more about “the odd shaving here and there” than “wholesale strategic shifts”.
Because of two large deals recently – such as the Aegon-Cofunds deal – the Lang Cat estimated that £207bn in assets under administration were currently in transition.
Meanwhile earlier this year Axa agreed to sell its platform business to Standard Life. Collectively these two deals account for £90bn of the assets in transition.
This, the Edinburgh-based consultancy firm assessed, was 54 per cent of the total platform market.
Because of consolidation and contraction, the Lang Cat predicted that more advisers would have to go through bulk transfers but it found that the process is too difficult.
It said: “A couple of dozen clients is probably enough to make a bulk transfer exercise a nightmare from which you think you’ll never emerge.
“Our chats with advisers who have endured the bulk transfer ordeal themselves only confirmed what we suspected – that it’s a colossal headache and really needs to be worth the hassle.”
Cost is one of the issues advisers face, and the Lang Cat found that the time spent handling the whole process could cost an advice firm up to £500 per client – this could include three hours of support time and three hours of advice time.
The report said: “The real question is – would clients pay, if there’s no major price differential (which there won’t be)?
“Assuming 120 clients, the exercise may be costing the firm in the region of £45,000 to £50,000.”
It said advisers should make sure they are transferring for the right reasons.
