Smaller firms unlikely to benefit from platform fee flexibility

Smaller firms unlikely to benefit from platform fee flexibility

Small- to medium-sized advice firms are unlikely to benefit from flexibility on platform charges in the near future, a consultancy has warned.

Mark Polson, principal at the Lang Cat, said greater flexibility for platform charges was likely to be the exclusive domain of large advice firms for "some considerable time" but he predicted there could be action on this in the future as platforms "disentangle" their charges.

His comments came after the Financial Conduct Authority (FCA) warned advisers about the need to ensure value for money, since the firm may benefit from the platform more than a client.

One of the ways of addressing that is advisers offering different models of passing the cost on to clients and platforms being able to facilitate that.

The warning has prompted two advice firms - AFH and Foster Denovo - to reveal they are planning to scrap platform charges for at least some of their clients.

Mr Polson said: "Larger firms are increasingly able to create their ‘own’ platform rather than simply white-labelling a retail offering, and this gives them the ability to control charging structures, amongst other things."

He said this was not a bad thing as advisers "should be absolutely at the centre of what’s offered to the client".

But he said individual advisers in those firms must still be free to recommend what’s most suitable for their client, irrespective of whether it’s the bundled, in-house option or not.

He said: "Whether this is better for clients depends on the total cost of ownership, and how suitable the platform itself is."

Mr Polson added: "The form of charges is really interesting, but we can’t make a case conclusively one way or the other until it’s demonstrably true that investing via one of these offerings is significantly less expensive on a like for like basis than through an adviser using a retail platform."

He also warned that while clients won't be paying en explicit platform charge, there would still be costs associated with custody, dealing, tax wrapper provision and administration, which they will still pay but it would effectively be a bundled charging structure.

Barry Neilson, chief customer officer at Nucleus, said: "We have no short-term plans to change our pricing mechanism but I think on a five-year view we will see the introduction of different pricing models across the marketplace to reflect the number of different client segments.

"Platforms will have to have the ability to offer different pricing structures and I don’t think that’s a bad thing.

"But it is also important that we don’t end up at a point where we have large amounts of cross-subsidisation."