The latest market report, published by the Lang Cat today (November 4), predicted the current regulatory landscape and level of consumer demand meant the cost of advice, platform, DFM model portfolio services and fund management could drop significantly by 2025.
According to the report, entitled 'Serenity, Courage, Wisdom – disruption and innovation in retail investment pricing', advisers are in the "strongest position yet" to reshape the industry amid a forecast the average cost of ongoing adviser charges could drop from 0.80 per cent to 0.60 per cent over the next five years.
We think it’s inconceivable that the typical total cost of ownership in both level and shape will be identical in 2025 to what it is todayMark PolsonThe Lang Cat also predicted the average platform cost for a £500,000 portfolio could be cut by 0.07 percentage points by 2025, from 0.27 per cent to 0.20 per cent.
Mark Polson, principal of the Lang Cat, said: "When we count the scores, we’ll find that advisers and planners won the last decade.
"In effect they have stood rock steady, as the winds howled around them. And as that wind subsides, what we find is that the industry is just starting to reshape itself around the profession."
Mr Polson said those closest to the client were in a position to drive the way the industry works.
He added: "In time, we’ll look back and view the immediate post-RDR period as a time when the sector convulsed and took time to right itself.
"But if planning and advice firms can seize what is theirs, what will come out of it is a sector which genuinely looks to serve firms and their clients rather than themselves. As so often happens, the first place we’ll feel this in [is] pricing."
The report also predicted the average cost to access DFM model portfolio services had the potential to drop by 0.26 percentage points over the next five years, falling from 0.36 per cent to a target price of 0.10 per cent.
Likewise the Lang Cat said the industry could drive the typical cost of ongoing fund management charges from 0.75 per cent today to 0.45 per cent in 2025.
Source: the Lang Cat
Mr Polson added: "We think it’s inconceivable that the typical total cost of ownership in both level and shape will be identical in 2025 to what it is today."
John Bennett, head of adviser proposition at Sparrows Capital, which co-sponsored the report, warned charging asset-based fees for model portfolios was "unfair on clients and ultimately unjustifiable".
Mr Bennett said: "This new paper from the Lang Cat lays out clearly why the price-setting power once enjoyed by behemoth providers and asset managers – where advisers had to take what they were given - is on the wane.
"Advisers are increasingly being served by disruptor firms that provide genuine choice in the construction – and total cost – of their propositions. This shift puts those with the closest relationships with the end investors in a position of real power."
Ongoing advice
The Lang Cat's annual survey of the market, State of the Adviser Nation, published earlier this year found percentage-based charging still "ruled the roost" for ongoing advice.
The research of more than 400 firms found 80 per cent only used percentage-based charging, 9 per cent used fixed fees and 6 per cent used variable percentage charging shapes such as tiered.
rachel.mortimer@ft.com
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