“Strap me in and platform me up”



One of the great financial mysteries of Britain today is the success of fund platforms.

Last night, light was shed on their murky secrets by a high priest of their dark arts at a talk I attended in a dodge-spot in Berkshire. I happen to like this person (being gender specific might imperil the Chathamhousality of the event I am at). But if he had rolled up his trousers and worn a dodgy uniform, I would have felt more comfortable with his message!

Platform people have their own language and I was soon struggling. Apparently you don’t lose funds from your platform, you “seed ” them to a rival. If you want to swap your technology – you “replatform” – but more of this later on.

The central message was that platforms were likely to bring down the cost of ownership of equities (and presumably bonds) to the public. Currently – on a platform, you can expect around 2% of your wealth to disappear to the intermediaries between you and the assets into which your money is invested.

It would seem that this cost could fall to around 1.2% , though Mr priest man did admit that there was scope for the bottom to fall out of the platform allowing consumers to have what they have today at less than one tenth of the cost (I heard the number 15 followed by “basis points”).

I shook my head (in disbelief) when I heard these numbers- Mr priest man picked up on my body language and laughed nervously. I suspect he saw me revisiting the costs I pay for my workplace pension (0.35% in total). Stephen Tiley has (in comments below) told us what he’s paying in his SIPP. Direct investment, whether into , funds, ETFs or equities might provide us with lower costs still.

As this article confirms, it is now very hard to use a self-invested “directly invested” pension. If you use a SIPP, the chances are you are using a platform – and paying platform prices.  Clearly the stakes are high on both sides.

Mr priest man has £11bn sitting on his platform, I am going to have a look at his company’s accounts – I suspect that they are stellar. I am sure that the four technology providers who manage the funds who have silly names like FNZ and GMBT and Blue something are also making a packet.

They charge 0.3% to marshall your funds around. Then there are discretionary fund managers who package funds up (like the montages you make on Instagram or Facebook) and then their are the financial advisers who help you choose which montage of funds, which platform and which tax wrapper you want.

In the deep distance, but no less deleterious to any prospects of investment growth you are likely to get, are the fund managers. They charge for their services and package up all the costs of their friends (see TTF blogs). The Priest Man looked knowingly at me when he mentioned the fund managers as the impact of their activities was not included in the 2%pa he had mentioned.

If you throw in the impact on performance of hidden charges to the Net Asset Value of your fund, I reckon the unlucky punter not investing with the likes of Vanguard could be well on his or her way to paying 3%pa, a number adjacent to the estimates of my friends Gina and Alan Miller.

Some years ago when I worked for Investment Solutions (now Mobius), I saw all this going on with wholesale (institutional) money. Unfortunately for my bonus, the margins weren’t as thick but the principle was the same. “Keep wrapping the onion in another layer of intermediation- keeps the light out and the charges in”.

I had curated my employer a strap line

“Portals for show- platforms for dough”

Unfortunately this was deemed a little edgy and not adopted. It hinted what I still suspect to be the case, that the portal (or as one of the audience called it – the porthole) , is simply window dressing. You see through the portal what the platform lets you see, and very nice it looks, but….

The Big Reveal!

Which brings me to the big reveal. WOW – at 3% pa – you are paying more for the privildge of having your money managed than you can expect in year on year growth on your investment!

Just why anyone would think that investing in a funds platform that – in a world where a four percent real return sounds a heroic target – takes 3% in charges- completely defeats me.

Platforms were the fund industry’s answer to the loss of commission (through the Retail Distribution Review). Instead of paying commission, we now pay management fees. Since everyone in the food chain wants to be a fund manager- everyone takes a bite out of your money on an “ad valorem” basis. BINGO – everyone wins but the punter who struggles to get a real return (or even a nominal return) on his investment).

The consumer now seems further away from the ownership of the assets into which he or she invests  – than ever.

The RDR has spawned a mongrel child with 666 on its scalp,

So what of the future?

Well the future seems to be about something called re-platforming which – if I wasn’t going to be chatting to the High Priest over my cornflakes, I’d call the biggest churn since they set up the Milk Marketing Board.

Apparently re platforming will bring down prices though it looked like an expensive and risky game of musical chairs where the investor finds himself ultimately sitting on the floor.

I asked whether this might involve adopting genuinely transformative technology – as in the blockchain – but the High Priest Man thought that this was many years away and left me with the not encouraging message that “financial services are slow to adopt ground-breaking technology”.

If I was in this platform game, I wouldn’t want to change anything. No wonder Mark Polson (the Lang Cat), and Holly Mackay (boring money) are looking so pleased with themselves. Their gentle teasing of those in the game does just enough to maintain the status quo- without  compromising their integrity!

Strap me in and platform me up!

Holly and Mark seem to be about the only people calling the platform people for the massive waste of money these things are. They are doing so in the nicest possible way.

If I could lift myself from the day job, I would really rip into platforms, their indulgent pricing structures and their absence of governance.

If ever there is an IGC to govern what is going on in platform land- put me on it! In the meantime- it’s wild west saloon time at the funds coral.

fund platforms


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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7 Responses to “Strap me in and platform me up”

  1. Some good observations Henry and one point that I would add is that the stability / longevity of some of these solutions needs to be seriously questioned. When looking at custody solutions for our clients we’re always particularly focussed on the ownership structure / capital behind the entity we’re dealing with. I’m not sure that all of the UK platforms are up to scratch to be honest. Although client holdings may be ring-fenced, being in a ‘Lehman’ type situation would be most unwelcome and likely to cost a firm clients. You highlight the likely total expense of a non-index fund type portfolio and I have to agree that at the current cost levels anything else becomes too expensive. Having had a few years experience now with various custody arrangements I’d say that 0.3% is the very upper limit that a client should accept even with a portfolio constructed of index funds. At that level it is possible to earn decent returns, even with an adviser’s fee as our clients would be able to attest to.

  2. Mark Meldon says:

    How interesting, but no great surprise! I have never been able to quite “square the circle” as far as platforms are concerned in the context of offering value to my clients rather than me. I’ll admit to having a dozen or so clients on the Avalon/Embark facility, but this is really more of an admin facility and charges not much more than 50bps and I used to use Fidelity FundsNetwork in its pre-platform days and I have to use ATS’s Stocktrade for my SIPP clients but that about it. I don’t think these are platforms in the modern sense of the word.

    I suspect that many of those who use platforms are getting around RDR in one way or another.

    Keep digging.

  3. Mike Jeapes says:

    Mark Polson is a nice bloke too, thelangcat blog is a good read

  4. Henry, great article.
    Just so I’m clear, if I was to hold a tracker – say 0.07% quoted AMC and had £100k invested via a fee based execution only broker, e.g. Selftrade (in a SIPP). Would I be wrong in assuming that my real cost is 0.07% of £100k and the fixed fees – I think no more than £200 a year – so in total 0.07% plus 0.2% = 0.27% per annum? Other fee based brokers are available, e.g. Share Centre, etc.
    Presumably your example is for people taking advice, active funds (some are good of course) and using IFAs etc? Is this why the likes of St James Place can claim to be no more expensive than using an IFA?

  5. henry tapper says:

    Direct investment is much frowned on.

  6. henry tapper says:

    Mark and Holly are good people, smart cookies and very cool indeed! They are however complicit!

  7. Henry, in the near two decades that I have been involved in what is now known as the ‘platform’ business, I have never before heard it referred to as a ‘mystery’! Also, for “seeded” try “ceded”, which I believe is terminology borrowed from the pensions industry! The major software and service suppliers are FNZ, GBST, Bravura and IFDS. Some platforms use internal resources for software development, e.g. Transact, James Hay, 7im. Interestingly, these are all at the more profitable end of the market.

    SIPPS developed as a separate idea for HNWIs some years earlier than platforms, indeed platforms are a logical extension of the SIPP ‘open architecture’ investment choice feature applied to the rest of the retail investment product industry and for small as well as large investors. Some SIPP providers have tried to turn themselves into platforms by also offering ISAs and ‘General Investment Accounts’ but their origin tends to be betrayed by the continuation of several SIPP features; like fiendishly complicated charge menus, retention of some or all interest on cash (as a ‘hidden’ charge) and a tendency to product develop with new accounts (read different charging structure and investment choice) whilst still keeping old accounts live rather than simply updating all accounts. In this respect, they still carry forward some of the ‘life company’ like culture which the original ‘wrap platforms’ were keen to distance themselves from.

    It’s worth reflecting for a moment on what platforms have replaced. The landscape of the retail investment industry (including pensions) was very different in the 80’s and 90’s. Then, life companies operating through IFAs dominated. Life Company Bond sales dwarfed unit trust/OEIC sales, even when PEPs came along. Apart from a Company Pension, or a SIPP, a Life Company Personal Pension was the only other way into a pension. The evolution of the personal pension into the group personal pension in the corporate world was one of the first manifestations of the move from DB to DC.

    All of these were ‘Silo’ products, each operating without connection to the other, even when they were different versions or generations of the same thing from the same company. each had it’s own, limited fund choice and these were internal funds of the life companies, subject to their particular pricing and taxation, even when outsourced to an external fund manager (which added another layer of costs). Adviser earnings were whatever commission they could negotiate with the life company. Life company funds went through an explosion of multiple unit price series (I counted 14 in one company, each reflecting a different charging/commission structure, a mistake now being repeated by the unit trust/OEIC industry as a result of the foolish ban on rebates to clients). As a result, a portfolio of several products from different companies took several hours to value and simple servicing, like an address change to several life companies, was almost bound to fail with a least one of them. Advise on a change involving a new provider (say to obtain access to a new fund) required new Money Laundering evidence every time.

    I doubt whether any adviser wants a return to those days. In the more efficient platform providers it costs 15 to 20 bps to actually maintain the various accounts which a client may have (including tax compliance where relevant) and the ‘market rate’ of charge is circa 25-30 bps for an average sized account. The max level of profitability is therefore circa 15 bps. Most platforms have less profit, often much less and many are still unprofitable. This compares with ‘vulture’ life company (closed funds) operations (a big chunk of total retail assets, much larger than the total platform market) which are typically earning circa 100 bps (1%) and have lower costs (much simpler products and no development costs). Result, much higher profitability managing a ‘run-off’ of old accounts than competing for new business).

    The amount spent on platform development, so far, ranges from tens of millions to hundred of millions by each of the providers. There is little correlation between amount spent and market share and there have been casualties and will be more (Axa having been one of the notable high spend, low share, casualties). Return on investment is in many cases either poor or non existent. Shareholders are asking awkward questions (ask Legal and General).

    For the client, investments are now available much cheaper than they used to be if you are satisfied with passive, even below 10 bps. Active still costs north of 75 bps. The latter figure will now only reduce slowly since a lower charge will require the expense and bureaucracy of a new unit price series (following the banning of client rebates – see above).

    Finally the ‘advise’ charge. Many platforms are geared only to work through advisers and don’t have the additional client facing infrastructure needed for a direct operation. Many adviser firms have taken the opportunity presented by platforms to increase their annual fee to 100 bps (compared with 50 bps ‘trail commission’ previously normally available from providers).

    In other words, over a couple of decades the platform revolution has enabled a complete change of the distribution of revenue within retail products, away from providers (including fund managers) and to adviser firms.

    What is an adviser? That is a remarkably difficult question. The FCA think it means selecting providers and product. That definition of advise is fossilised in legislation and regulation. However, most advisers now think it is financial advice which defines their service (including cash flow planning, asset allocation and risk assessment) which, ironically, is not a regulated activity.

    For the direct investor who doesn’t want ‘advice’, the choice is growing but pricing is still led by the market giant, Hargreaves Lansdown. A few years ago their profit margin was an astonishing and unrivalled 75 bps. That was unsustainable but even now their profit margin alone is more than some adviser centric platforms charge. In other words, foregoing the advice option doesn’t result in as big a reduction in total fees as you might think!

    Meantime, charges disclosure seems to me to be moving backward. Despite Brexit, the Regulator is transfixed by MiFID II and PRIIP KIDs (which seem more like part of the problem rather than the solution) and we have a lot of noise, but little evidence of understanding, about the disclosure of transaction charges and their part in the delivery of overall net performance to the client. All the while (for the last 20 years), we do actually have a single number (delivered in point of sale ‘illustrations’) which does encapsulate the effect of most charges for comparison (and could be extended), which is RIY. This remains almost totally unused since most advisers don’t trust the numbers calculated by providers, don’t have sufficient knowledge to calculate it for themselves (despite tools now being available) and don’t bother to explain it to clients (“It’s just small print”). It’s about time that RIY understanding and training gets a vigorous shakeup since it is the answer to the ‘impossible’ charge comparisons which journalists and even commentators (like Holly MacKay and Lang Cat) frequently complain about.

    Finally Blockchain. This has been embraced vigorously by the banks who all have at least one Blockchain related project on the go (after having largely ignored platform development). Asset registration and transactions (everything from property through funds down to individual shares) could also be made much quicker and cheaper with Blockchain but that will take longer. This will disrupt the commercial model of some of the platform software and service providers more than it disrupts platforms themselves. Platforms will become a repository of Blockchain recorded assets held in various “tax wrappers”. I don’t see any diminution in the importance and availability of the variety of tax wrappers, including more than one sort of pension accumulation vehicle and several decumulation variations.

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