Smaller firms unlikely to benefit from platform fee flexibility

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".

Ultimately the cost has to be passed on to the client because it is their money which is paying for the adviser fee and ours. Bill Vasilieff

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."

He added the Retail Distribution Review had been a "catalyst" for a lot of change in the financial advice market, adding: "The next phase in that evolution is we are beginning to see charging models beginning to evolve."

Bill Vasilieff, chief executive of Novia, said: "Ultimately the cost has to be passed on to the client because it is their money which is paying for the adviser fee and ours.

"Scrapping platform charges is only a part of the story. It would be good to see the second part of the story, which is what happens to the adviser fees."

One of the issues the FCA uncovered during its platform market study was that charges could be opaque and complex.

It found that adviser platforms fell into two groups: about half had a relatively small number of fees - between one and seven - whereas the other half had between 15 and 35 fees.

Jeremy Mugridge, Quilter’s UK platform proposition head, commented: "The platform market study is a prompt for platforms to do more to help advisers articulate the value of the platform and it’s something we will be looking at closely.

He added: "We need to be mindful of the importance of maintaining transparency of charges in this debate.

"The RDR separated the cost of advice, platform and investments, and any model that removes these charges needs to clearly prove that other charges will remain stable over the longer term."

damian.fantato@ft.com