Transact has said it is unfazed by cheaper platforms entering the market because it thinks their prices will rise as interest rates climb and place pressure on charging bands.
Luke Carrivick, investor relations head at Transact’s owner IntegraFin, told FTAdviser the gap would narrow between the most and least expensive platforms in the UK adviser market.
Transact is cheaper than 16 of its competitors, charging 0.31 per cent on up to £100,000 of assets according to Lang Cat data. But it is also more expensive than 11 of its other rivals.
Asked how Transact planned to compete with new entrants to the platform market like Seccl, which runs on a 10bps margin, and FNZ deals understood to be as low as 5bps, Carrivick said: “Obviously, interest rates are rising quite steeply.
“All the interest earned on client cash we pass fully on to the customer into their portfolio. Other platforms take either a proportion or all of the interest earned on client cash.
“In effect, that's a price rise for the customer. So as interest rates go up, I think you're probably going to see the charging band levels of some of our competitors either be more expensive than us, or that gap narrowing a bit.”
Transact’s chief executive, Jonathan Gunby, said interest on client cash can constitute “an enormous amount of money”.
We reckon we’re pretty efficient.Jonathan Gunby, Transact“Most platforms have about 7 to 8 per cent in cash. If the platform operator is skimming that, it can be half the profits,” he explained.
Some long-term Transact users have told FTAdviser they have moved clients away from the platform this year to cheaper alternatives. But Gunby was stalwart in his belief that there were plenty of platforms which lacked transparency around how much they actually cost.
“It’s a bit budget airline out there. Lots of cheap headlines, but then there's a payment for when you go into drawdown, if you have to produce some paper statements they might charge you for that, and if you have a pension splitting order they may charge you for that too. Some people have a real menu of extras,” he said.
Interest rate skimming, Gunby said, is the “giant” extra. “Why would you sneak that in? It’s like keeping a client’s dividend.”
Transact’s yield on its £50bn funds under direction is around 25bps. Its cost base is around 13bps.
“We reckon we’re pretty efficient,” said Gunby. “I don’t think there’s many people running a platform on 13bps.”
Transact has cut its platform fees twice this year. "In some ways, this is linked to the company's share price," said Gunby. Transact's share price has fallen around 50 per cent over the past year.
"We're in our thirteenth year of price reductions. We don't guarantee it. We look at the financials each year and then make a decision," said Gunby.
The platform is currently working on broadening its proposition. In July, FTAdviser revealed it was gearing up to launch a model portfolio service with BlackRock. This will see the platform host its own investment proposition for the first time.
"What we're not going to do is internationalise. And we have no ambitions to go direct-to-consumer," said Gunby.
"We are sticking to our knitting. We think there's loads of growth in the UK for many, many years. So we don't want to be distracted by bright shining lights over there. We're going to stick to what we do. But we will stretch the proposition."
ruby.hinchliffe@ft.com
