Alistair Wilson goes bananas about the perceived importance of price when it comes to platform investing...
At the risk of attracting the ‘wrath of Khan' of social media, I have been tinkering with things such as heat maps. What's the worst that can happen?
The point is, our industry has always been besotted with price, and although the market has changed significantly over the past 30 years, a focus on cost remains.
There is no doubt that pricing structures have evolved and improved to be clearer and cleaner, enabling a level of understanding that just wasn't possible in the past - well, the newer stuff at least.
Creating a heat map of older products would be a feat in itself. So my focus here is on the newer stuff.
We all know the importance of highlighting costs in pounds and pence, so I thought I would take one of those well-prepared heat maps and do just that - but with a twist - and take a light-hearted look at cost.
In the recent 'Platforms are dead' report ("oh no they're not" ... nearly the right time of year once again) the lang cat did the hard grunt and published - among a number of other intriguing findings - figures for clients holding multiple wrappers and multiple funds as well as carrying out some switching for good measure.
The lowest price reported to host clients' money is 77p per day, with an average across 18 platforms of £1.07 per day for £100,000. This isn't a push for one platform over another, but a reality check of where the industry has landed.
Price is a measure but not the best comparison some would have you believe
Yes! We have no bananas
So for adviser driven platforms, we have a daily price range, between the lowest and the average, equivalent to just two bananas.
Perhaps, like me, you don't expect clients to be solely interested in the cost, and may even lose interest in it when they realise the difference in price may be as little as a few bananas.
I fully accept that the overall cost will rise and fall with markets over the years, but much is focused on the here and now.
Price is a measure but not the best comparison some would have you believe.
I have heard it said: "If I focus on cost and buy the lowest I can't really have a poor client outcome." I don't subscribe to this approach, and with the level of difference being the cost of mere bananas, I am sure this will be news to many clients.
I would go so far as to suggest that clients expect the decision of where they invest their money to be based on a better measure than this.
But if price is to be the driving principle of a good platform, it is important to understand the other savings that can be achieved and not just the headline rate.
Costs can be reduced further by broadening the reach of the platform to other members of a family. So a family with £255,000 in cumulative assets on platform could see a reduction of 10% in the running costs of the platform.
For some platforms, where assets are held under trust or are a trustee investment from an existing family or pension trust, they aren't considered to be part of the family and are excluded from the calculation. For other platforms they are included, so be sure to ask.
The totality of assets to be invested can also drive costs down, which is why including family and pension trusts is so important, as there can be significant value in them.
But you may be thinking there is still investment management to be paid for.
Ultimately, the client may only care about the total cost they pay - the cost of the platform and the investment (and the advice.)
Having access to super clean funds will drive down the overall cost to the client. For example, the average price difference (across 320 funds) between super clean and the standard unit on our platform is 0.1% or, following the theme here, a reduction of two bananas.
And for those advisers and clients, who wish to access passive investments, it is important to have a good quality range available, not just mutual funds but also exchange traded assets, in order to extract maximum value and reduce cost.
Additional costs
There can be additional costs that may need to be brought into the debate across adviser and direct platforms. This has never been more important than with the income strategies that advisers and clients are looking to put in place for retirement.
Remember too there can be further costs; when exiting from a platform, taking one-off withdrawals, carrying out trades or when the value of an account falls below a set amount.
In the decumulation market, we will see more clients adjusting their portfolios and income levels to accommodate their changing lifestyles.
Understanding the ancillary costs are important, to avoid potential banana skins down the line.
So, is your platform fit for purpose? Does it give clients confidence that it will cater for their needs?
And if the answer is ‘yes for now', what is the cost to change if you decide, as their assets are growing, that it is better to be with the right platform now as opposed to having to move at a later date.
I do believe clients expect the reason for investment in one solution over another to be more than just the daily cost of a few humble bananas.
Understanding the ancillary costs are important, to avoid potential banana skins down the line
What's more, they will be surprised to learn that their daily takeaway coffee costs more than double that of keeping their money on a platform. Which is also bananas.
Alistair Wilson is head of retail platform strategy at Zurich
