Consolidator  

AFH to scrap platform costs for clients

AFH to scrap platform costs for clients

Advice consolidator AFH will be absorbing the cost associated with its advisers using platforms, in a radical departure from the industry practice of charging clients for the service.

The vast majority of adviser business, and nearly all investment advice business, is held and monitored via an online platform, with the fees charged by platforms for this service  traditionally passed onto adviser's clients.

But chief executive Alan Hudson said AFH will no longer be running its business that way. The only issue over the move was timing, he said.

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"It is not a question of whether we will do this, it is a question of when we will do this," Mr Hudson said.

The adviser consolidator said it was unreasonable to expect clients to pay for a service which primarily benefits advisers and predicted this would happen across the industry sooner or later.

Mr Hudson said: "I suspect that platform costs won't be paid by clients, they will be paid by advisers. It is inevitable. The only question mark is the timescale over which it occurs.

"If advisers have got to fund platforms out of their own pockets then they have got to be a lot more price sensitive."

Earlier this year AFH revealed it was using its scale to push down fund manager fees by reaching deals with six fund management companies to run segregated mandates on the company's behalf, which Mr Hudson said would provide a saving of between 15 and 22 per cent.

Mr Hudson said: "When you start to combine reducing platform fees and the benefits of segregated mandates, that provides a big gap between the large and the small firms.

"There will be serious advantages to dealing with a larger firm and all that is going to do is hasten consolidation."

AFH, which has more than £3bn in assets under management and more than 160 IFAs, has its own platform but its advisers are able to choose whichever one in the market they believe is most suitable for their clients.

Last year the Financial Conduct Authority launched a market study into investment platforms because of concerns about whether there was enough competitive pressure in the platform market to incentivise operators to put pressure on asset management fees.

It had already raised concerns in the current market study on whether platforms were restricting competition by hampering switching and if investors benefited from economies of scale, suggesting this warranted additional work.

Yesterday AFH reported a profit of £2.5m, on revenue of £22.7m, in the six months to the end of April.

damian.fantato@ft.com