Adviser-owned platforms risk ‘margin grab’ outweighing client outcome

Adviser-owned platforms risk ‘margin grab’ outweighing client outcome
REUTERS/Arnd Wiegmann

Advisers who own their own platforms run the risk of putting a “margin grab” before the best client outcomes, according to one of Schroder’s chief investment officers.

Alex Funk acknowledged restricted advice models are evolving, with more advice firms owning their own platform and even some of their own investment products.

“This model isn’t necessarily bad, as it gives advice firms more of an ability to control things like pricing,” said Funk.

“Unfortunately, some of these models are about a grab of good margin…But good client outcomes have to be satisfied.

"When I look at the mass migrations happening across the market, I find it hard to see this satisfied every time. They aren’t always the best outcome.”

Speaking at a media conference, Funk said unless advice firms can offer better products, service, and a smooth migration alongside lower fees, he would seriously question the motivations of advice firms to move to a restricted model where they have more control.

Custom platform provider Seccl is priced at 10 basis points, and goes down from there. Comparatively, the cheapest advised platform provider charges double this price, at 20bps.

Some advice firms also use Multrees, which offers a layer of management on top of the platform. Using its technology, Wills and Trusts Wealth Management typically charges a 0.1 per cent fee to operate the platform, and 0.1-0.2 per cent for its discretionary fund manager.

While Funk acknowledged the serious savings advice firms can make operating this model, he said the incoming Consumer Duty would throw fresh scrutiny on them and how firms handle the migrations.

Seccl's chief executive and Nucleus founder, David Ferguson, responded to Funk's comments, saying advice firms owning their own platform is "a clear win" for customers.

"This can play out several ways," he told FTAdviser. "But ultimately the ability for those closer to customers to have greater control, to build on something genuinely digital, and to disintermediate the substantial costs of corporate platform owners, should create a clear win for customers and advisers.” 

Multrees chief commercial officer, Andrew Back, also responded to the comments. He said the motivation for high quality advice firms his firm is talking to "is rarely, if ever, about 'margin grab'".

"Rather, it is about better controlling and improving the client service that they deliver leading to improved consumer outcomes," said Back.

"In our experience advisers are increasingly looking for flexible technology, matched with a strong service solution.

"With growing pressures on advisers' time, they will need to be assured that their technology not only works as it should, but that it is fully integrated into their proposition and backed up with support where required."