New Model Adviser
I published a blog over the weekend , which is rather better for the comments it’s attracted. Indeed there’s an argument to read the comments and ignore the blog!
The blog asked “what’s the point of platforms?”. I hadn’t expected it, but those commenting on the blog helped found me the answer?
One of the questions posed in these comments is who should pay for the tools with which an adviser does his job. If we consider the platform (and the various modellers that come with it) are being selected by the adviser as his/her tools, then the adviser’s “price” should include the cost of the platform and the tools.
But this is not how platforms are being presented to the public. Witness the oft-quoted (by me) table of costs published by New Model adviser.
It is now common practice to get clients to pay for the platform (the tool) on top of the adviser’s costs – not as part of them. Graham Bentley comments
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…
Graham’s comments are perhaps referring to the title of the New Model Adviser piece from which the table above is taken. The piece is entitled
‘Advice fees are going up and there is no evidence they will come down’
The quote is from Phil Young , a favourite of this blog. I hope the piece’s author Jack Gilbert will forgive me for quoting Phil’s comment in full.
‘I have sat in meetings where people say: “We think adviser fees are going to come under pressure.” But in the next slide they said supply is going down and demand is going up. People sat in the room from outside the industry, are looking at it and saying “this doesn’t make any sense.”
‘The evidence is that advice fees are consistently going up. As much as we on the inside say they will come down, there is no evidence that this is happening at the moment. The normal metric of supply and demand suggests that is not going to carry on further forward. All the metrics suggest advice fees, if anything, could go higher.’
Since RDR, the cost of pure advice has risen from 43bps to 87bps. As the headline of this piece points out, 100bps is the new normal.
What does this mean to our savings?
By dividing the advice fee into two , and getting clients to pay not just for the advice, but for the tools of executing that advice, the adviser is doubling the rake. Not all the rake goes to him, but if the platform is limiting his exposure in terms of executional risk and time , then I think it’s right to consider the platform fee as part of the advisory cost.
Here is what one adviser (Darren Lloyd Thomas) has to say about the total rake from the advisory/platform cost pre and post RDR
‘If you run a like-for-like comparison on 300 bps initial plus a 50 bps ongoing charge, which was the standard approach, it decimates the investment,’ he said. ‘It takes over five years before 0 bps initial plus 100 bps ongoing becomes more expensive”
The comment is supposed to demonstrate that the customer is now getting a better deal from a 100bps advice charge. But the problem with the argument is that pension investments aren’t over 5 years, they are typically over 40 or more years (especially if advisers are taking over the decumulation (spending) period of the pension policy.
We know that 100pbs (1%) pa reduces the size of a pension pot over a 40 year period by 27% – if that is what an adviser is charging – over the benchmark – the non-advised workplace pension rate, then he has a lot of catching up to do.
Put simply, would you bet a quarter of your retirement funds on the promise of an IFA to make that money up and pay on top as well?
That is the bet that an IFA charging 100bps in platform and advisory costs – is asking us to take’ Can an IFA deliver value over the cost of buying and holding a fund through the term of the investment?
Dumb buyers or duped buyers?
Mike Barrett of the Lang Cat, makes a point I’ve heard from many IFAs, namely, that relative to St James Place and Hargreaves Lansdown – they are cheap.
‘Consumers are still not particularly price-sensitive. The dominant direct-to-consumer platform is Hargreaves Lansdown, which charges an above-average platform price. The dominant advice proposition at St James’s Place also charges well above average total costs.’
This argument is incendiary. The FCA and the CMA should read it again and again. There is no justification for using the two behemoths as a financial shield for over charging. Just because SJP and HL are way too expensive, doesn’t mean everyone else should be pillaging in their wake.
Let’s remind ourselves again of the OFT’s comment in 2014.
The OFT required workplace savers to be protected by the IGCs and by Trustees. The FCA went further and slammed on a charge cap and a ban on consultancy charging (where the member picked up the employer’s costs).
What happens when you get dumb buyers, is you get duped buyers and if IFAs can’t see the consequence of duping buyers, then they aren’t watching.
Everyone’s a winner till it’s time to pay the bill.
Platforms exist to insert a layer of charges between an investor and their investment. https://t.co/DX06cfhEcC
— Paul Lewis (@paullewismoney) May 20, 2018
I am quite sure that is now how platforms started out, I am sure they started out as a means to provide a pensions dashboard, drive down fund management costs through aggregation and enable those who like to manage funds – to manage funds.
But that is what platforms have become – a means to layer and collect charges for advisers. Platform managers are well paid for the technology, fund managers have a centralised means of distribution (and can offload most of their client servicing obligations).
Everyone is a winner because the fund pays everyone!
Except it is not really the fund that’s paying is it? The debt is on the customer’s retirement income, and that debt won’t be revealed till it’s too late.
Henry, it is very easy to criticise, but when some of us are trying to suggest solutions, bearing in mind the comments from your previous article, I do think your latest post is unfair on those of us trying to do the right thing. I work at the lower end of the market a % of a small sum IS a small sum. A % of a large sum is often obscene. This fous on “bips” misses the point that there has to be a minimum charge for anything we do ot we might as well become charities/be nationalised, in which case some advsiers woudl earn MORE not less.
There is a practical point here, too. I help look after about £30m held in SIPPs by clients. About 25% of this is cash, held in the SIPP bank account (Bath Building Society & Metro Bank) or in NS&I products. The rest is invested with most being held in investment trust shares, ETFs and a few OEICs. Of necessity, these SIPPs have a ‘dealing account’, on which these ‘dematerialised’ investments are held in a nominee arrangement. The investments are owned, strictly speaking, by the SIPP trustees and the SIPP member is the beneficial owner. I use Stocktrade, a division of Alliance Trust Savings and, I think, this offers reasonable value for money for the generally excellent service provided.
I can’t see that we can do anything otherwise than use a so-called ‘platform’ (this is not a ‘wrap’) in these circumstances. We simply can’t go back to certificated holdings (there are no certificates for open-ended funds anymore, anyway, to my knowledge) as this is impracticable. Setting aside fund management fees for the sake of simplicity, most of my SIPP clients pay ‘pounds and pence’ fees to me and the administrators and a modest fee to Stocktrade, all rather less than 0.85% per annum in most cases.
I have a few clients on the Embark platform for ISAs and investment accounts and this is inexpensive in comparison with much of the market (although I have had a few ‘issues’ with administration).
What is the solution here? There are no ‘free lunches’ and, even though I held off using platforms for many years (as I could never quite see who really benefitted from them) but we are where we are.
I wonder why the subject of schemes that have failed their members never features or ever seen as poor value, it certainly happens when it is too late to do anything about it. I am not sure how this sort of article is meeting the objective of the blog which I recall was “restoring faith in pensions” Lobbying like this has certainly influenced the PI providers to withdraw from the market. Booth Wealth has now been sold please note new email. I may return to advise but hard to make a case for a viable business in the UK and this sort of criticism is not helpful or constructive
I said this on the other post: it is not possible to invest a client’s money direct with a fund manager any longer. There are odd exceptions but they are few and far between. If you want to invest a client’s pension with an insurance company such as Prudential or Royal London this is fine but you have slated advisers using insurance companies in other posts.
At the moment the client pays a fee to the platform. They can move to a new platform easily. In the past the client paid a fee to a fund manager and the fund manager paid the platform and the adviser. This was bad because nobody truly knew who was getting what so it was impossible to see if the platform offered value for money.
I had some clients with Cofunds. I worked out that if my clients held the current range of funds in the old way of doing things they would pay 0.28% to the platform (which came from the fund managers’ pockets). They also paid switching fees of 1% of the amount switched. Now a client pays 0.29% of the first £100K of their investments, then 0.26% of the next £150K and so on. On this basis a client with £120K or less is now worse off than under the old system (to the tune of around £2.80 per year by the way), unless of course they ever incurred any fund switch fees. On the other hand clients with more money invested get lower and lower fees and this did not happen with the old system. For example a client with £500K invested would have paid £1,400 to Cofunds via their fund manager under the old system. Now with the discounts applied by Cofunds they pay £1,250 per year. So they are better off by £150 per year.
One of the commenters on the previous post appears to work for a large national advice firm. He criticised advisers for using platforms. My understanding is his company has created its own platform and so it does its own fund trading and holds the client assets. The client pays a single fee, which I think is 1% per year. This is what you appear to want based on this post.
My question is, does this offer value for money? The client doesn’t know how much they pay for advice and how much they pay for trading and custody. The client can’t compare this to another platform. The client can’t separate out the advice from the platform, so if they are unhappy with the platform service but happy with the advice they either stick with both or leave both.
In my opinion specialisation exists for a reason. Advice firms shouldn’t run their own platforms and should instead leave this to the experts. Clients should pay an explicit fee for the platform so they can easily judge it’s value and compare it to other platforms.
Can we get impartial advice on which platform is best value and transparency on actual cost…in simple terms and without caveats and agendas. Not that I can see.
As a consumer- no! You get the platform your adviser uses- unless you want a D2c platform of which there are few