This is a comment from an IFA on the recent history of retail investment platforms in the UK.
I find AJ Bell about the best, but they too have their moments.
Aviva – Rubbish
Aegon – Rubbish
ATS – Rubbish
Fidelity – Rubbish
Cofunds – Rubbish
James Hay – Rubbish
The counter argument is that if they are all pretty much as useless as each other then you might as well have the cheapest rubbish
The point of platforms is to please IFAs who in turn can show off to clients. But if you read this report from Citywire, you’d wonder why insurers bother with platforms and why anyone is bothering with “re-platforming”.
The comment of the chap above is only one of 40 on a similar theme. IFAs get the platform for free, tools for free and the kudos of a working portal for free. The client pays a platform fee and the IFA benefits by picking up on average 0.83% pa in management charges (up from the 0.47% taken before the implementation of RDR). With the FTSE at an all time high, small wonder that the average IFA is now earning well over £90,000 and in a position to moan at the time cost of having to wait on the phone to sort our platform queries.
I know of no other industry where the intermediary is quite so indulged by both clients and suppliers; nor any industry where those who take so little risk are able to moan to anything like the same degree.
What is the point of these platforms?
These platforms are outrageously expensive.
New Model Advisers
The IFAs pass on the cost of the modellers and the functionality to clients when they could (perhaps should) be absorbing into their advisory fees.
The platform – incentivising short-termism.
The platform itself is a luxury item that is – for the most part – totally unnecessary. It gives the adviser the opportunity to move your money from fund to fund with untold transition costs and with dubious advantage. Tactical asset allocation (e.g. – second guessing the market) is fun when you are playing with other people’s money, but how many of us would be buying and selling physical assets as we do funds.
If IFAs properly understood single swinging pricing, they would realise that every fund switch has the potentials to lose clients hard-earned value. But since the cost of transitioning is rarely if ever disclosed even to the IFA (let alone the hapless client) the platform becomes not just the means but the justification for churning.
After all, if your client’s being charged 30bps a year for the capacity to trade, trading perversely seems the value for your money. This is no way to carry on. It forces managers to carry too much liquidity and requires them to justify themselves on all the wrong metrics.
Platforms – the insurer’s ruin
One after another, the insurers are ruining their businesses investing in “the rubbish” that they’re served up by FNZ, Bravura, GBST and the rest. I was amazed to read Zurich’s Alistair Wilson tell New Model Adviser
“Our platform is already powered by the latest technology and therefore we have not needed to carry out any large-scale upgrades. However, to ensure our platform remains at the technological forefront for advisers and their clients, we continue to release regular updates to enhance the design”
,Zurich use the “latest technology” of FNZ, technology Adrian Durham and David Harris approached me with in 2003. 15 years later this technology is still being touted as “latest”. In the meantime, large sections of our economy has moved on. The databases of today are provided by Salesforce, Microsoft and Amazon. We are in an era of Open Banking where APIs move data from point to point at the press of a button. The distributive ledger is taking over and with it artificial intelligence. I see precious little of any of this in the offerings of any UK insurer.
Instead I see ruinous “re-platforming” , destroying value for shareholders and policyholders alike. Old Mutual, Aegon, Aviva, Phoenix, Standard Life , Fidelity – you name the insurer, you’ll find a train crash in terms of customer and shareholder satisfaction with the finger pointed at “re-platforming”.
The reason that re-platforming is ruinously expensive is that the technology is old and hopeless. The new stuff is almost as old and still pretty hopeless. Rather than take a proper decision to move to next generation technology, the insurers do what they see as least risky and follow the herd.
Nobody got fired for hiring FNZ
Four years after the announcement that we would never have to purchase an annuity again, the insurers are finally getting round to building systems that allow people to have their money back in the way that suits them, “To and through”, should benefit the insurers – who can benefit from platform fees for as long again as the saving period. And of course it will benefit IFAs who can factor in advisory fees for just as long.
But instead of taking the opportunity to build out to the Fintech technology that is changing the way we pay and get paid, the insurers are simply employing their platform managers to pile on the agony.
The lack of a coherent and forward looking technology strategy among the insurers and most of the SIPP providers is staggering.
What is the point of these fund platforms?
You cannot avoid the conclusion that platforms are there to fill the hole left by commission. The public seem to have an appetite to pay more than 2%pa for their money, and – as Vanguard are now showing – it’s quite possible to provide everything the investor needs for less than 0.30%.
But thanks to platforms , we are typically paying six times as much for very little more. Indeed, if we take into account the extra cost of transitioning within funds and between funds , we may find the true cost of platforms creeping towards 3% pa.
Fund platforms are great for advisers and platform providers , they are proving the ruin of insurers and consumers. Avoid.
I think you have said this before. I do prefer to see your more positive articles, those that concentrate on creating value or working together for the benefit of the client rather than a superficial view of some other professions price
I just keep saying it John, because nobody else is calling the emperor’s new clothes. These platforms are doing no good for most people and wasting a high proportion of our hard earned savings. Most people don’t need them and should use their workplace pension as their platform instead of messing around with vanity products.
For a positive article, read what i have to say about the unions, also published today 20/05/18 ! https://henrytapper.com/2018/05/20/trade-unions-a-necessary-agent-of-change-in-our-pension-system/
Without platforms a client could have a pension and an ISA and a general investment account with different providers, each of which would provide the lowest cost but which in aggregate could prove to be more expensive because platforms pass on the economies of scale gained by having one customer with multiple accounts. On top of paying more the client would have different providers to keep track of.
You mention vanguard in your post. So if an IFA wants to invest their client’s funds exclusively with vanguard (and ignores the various other passive fund management houses such as legal and general, ishares, fidelity) what should they do? The vanguard platform you mentioned is direct to consumer and is not available through financial advisers. Most fund houses don’t accept direct investment anymore unless you want to invest more than around £250K per fund and very very few offer a personal pension (you might get lucky and get an ISA account). So you are forced to use a platform anyway. If your article had slated advisers who use unnecessarily expensive platforms without justification I would support you wholeheartedly. But to slate advisers for nothing more than using a platform just demonstrates a lack of understanding. I know you were an IFA many years ago when direct investment with fund houses was the only option but the market has moved on now and platforms are a necessary evil.
I agree with the IFA above & John Mather.
A Platform is just a tool. It is a tool of the advsiers trade which helps both the client and the adviser. Would you tell a carpenter NOT to use the right tool for the job Henry? I think not. For many clients, a WRAP platform IS the right tool for the client, but not any on the list you start your article with, they are all useless.
The solution to yours and Graham Bentley’s challenge is for the platform fee to be met from the advisers charges, ie. if the IFA reccomends it then their advice/admin and platform fee shoudl be inclusive just as teh carpenters fee is for doing the job with the tools he has chosen for the job and if he chooses to use a nail gun rather than a hammer, the client doesn’t care, it is the price and quality of the work they are interested in.
With the transparency on charges wiht (some) WRAPs, this can be done.
Spot on. And a difficult position to take given the financial planners’ devotion to platforms. The key point is platforms facilitate fee payments and consequently the customer experience remains as it was pre RDR, except now they’re paying 80% more fees. If asset managers (or platforms for that matter) were jacking up their prices to the same degree, many advisers would be up in arms. Pots and kettles spring to mind…
And from the point of view of the fund manager they limit competition by only promoting certain funds in the platform shop window and they break the relationship between manager and client. The manager has no idea where the funds are coming from which just encourage more generic advertising.
That might be good for trade mags and IFA seminars but a very poor way to spend marketing money.
That is of course if a platform agrees to host the fund in the first place which is by no means guaranteed.
A platform is just a tool but we need to remember what it replaced. ISAs/direct investment with individual fund managers (e.g. an M&G ISA, or a OEIC from Invesco Perpetual – for fund managers that still offer direct investment). A platform is not always needed but where it can create efficiencies we discount the cost of our services (by the amount of the platform charge) to reflect the efficiencies we gain by managing a client’s money via a platform, so our clients are not exposed to unnecessary extra costs.
On the other point, workplace pensions should always be the first choice for regular contributions whilst employed but are not the only solution for larger funds/or more complicated needs (i.e. not all workplace pensions offer all the options someone might need) or for the self-employed. A pension account on a platform can be an efficient means of managing the transition into retirement and drawing income tax efficiently across tax wrappers. Again, the platform acts as the tool we use so we discount the cost of our service so the client isn’t disadvantaged.
I disagree with the idea of only using the AE pension as saving vehicle. Many are not made to cope with anything else than the regular employer and employee contribution, not even with the odd salary sacrifice before the end of the tax year.
I do agree with the idea that platforms should be cheaper and eventually paid for by the IFA. We shall not forget that apart from being a platform they are sometimes a tax wrapper too (personal pension, ISA etc). My personal view is that they should use more often a fixed fee than a %.
I think that in time they will become a lot cheaper due to competition. If I look at the US platforms they are free (paid by the fees collected from their money market fund) or very cheap. But they have achived an important critical mass.
They are not only of use for the IFA, but to the client too, who do login many times over the year to check their investments!
There are investment managers out there who don’t have platforms. Why not use one of those. I do.