If it is advisers who are reaping most of the benefits from using a platform, Henry Brennan asks, should it still be something clients are expected to pay for?
The volume of new investments being written on platforms has grown to the point where it has become the most common scenario for advisers. Given that the use of platforms is fast approaching a point where it will become as commonplace as any other aspect of an adviser's operations, should it be the investors who are still expected to pay for their use?
Figures from The Platforum recently demonstrated the extent to which new adviser flows are being written on platform. Whereas nine months ago 69% of new business was written this way, by the end of August, it had risen to 80%.
The Retail Distribution Review (RDR) set the transparency drive in motion, whereby an investor no longer sees a bundled charge but rather the specific amount they are required to pay for the platform. This seems to be based on the assumption that the investor should pay for the platform however.
Who pays for the platform?
But the regulator has made it clear that this does not necessarily have to be the case.
One section from April's PS13/1 platform paper specifically detailed that platforms can receive payments from advisers: "A platform service provider or its associates may solicit and accept payments from: a firm, other than a retail investment product provider, which is in the business of making personal recommendations to retail clients in relation to retail investment products; and/or a firm... which is in the business of arranging or dealing retail investment products for retail clients."
The regulator has, then, held the door open for 'adviser pays' propositions but, four months on from the paper's publication, very few appear eager to walk through it.
The lang cat principal Mark Polson said there is a case to be made for advisers paying for platforms given that they see the majority of the benefits.
He said: "Most of the benefits of platforms are felt by advisers but someone else is paying for it. This is great if you are an adviser but not all that good for a client, particularly with some propositions that cost more for functionalities clients might never see."
"There should be room for a proposition where the majority of costs for running a platform in the business are the adviser's."
Novia chief executive Bill Vasilieff said the prospect of an IFA firm paying a flat rate to a platform provider, but still distributing the cost among clients, was an emerging possibility.
He said: "The reality is that most of your costs are linked to clients. Maybe the IFA could pay a flat charge and give clients a higher rate. It is possible but you do not want a mismatch between your income and expenses. Effectively, you would have to have a lot of clients in order to spread the cost among them. A firm with fewer clients would just not be that interested."
Pass it on
When the prospect of adviser pays is considered in reality, it generally comes with the acceptance that the client will inevitably end up paying, just not directly. Moves have been made towards adviser pays models but they are far from a full realisation of what is permitted.
Wrap platform Ascentric operates an adviser pays model, which focuses on shielding the client from platform charges. Clients receive a higher fixed rate from the IFA, who then absorbs any fluctuations in platform charges rather than the end client.
Ascentric chief executive Hugo Thorman said: "At the moment, the client takes the risk. But if the adviser pays then they are taking the risk. We have a number of charges and, with adviser pays, it is the IFA who immunises the client from the variability of these charges. It makes the client more secure in what they are actually getting."
eValue strategy director and founder Bruce Moss said that, since the costs will inevitably be passed onto the end client somehow, it is perhaps best they stay in a position where they are in full control.
He said: "The adviser is ultimately going to pass the cost onto the consumer one way or another, given that both need to run a profitable business. The consumer might as well recognise they are paying for it, recognise it is a platform charge and decide whether the benefits of the platform are worth the charge."
Adviser Home director Brendan Llewellyn suggests this highlights the need for platforms to demonstrate to the end consumer how they are benefiting rather than just advisers.
He said: "The platform needs to think about how what they are doing is directly benefiting the end client. Even if it is not a direct-to-consumer proposition, I think they would be remiss if they did not make it clear how platform negotiations with investment houses are benefiting clients, for example."
For all the considerations of an adviser pays proposition, two things are clear. First, it is possible from a regulatory perspective; and second, nobody has implemented it to the full extent.
The door is open, however, and it will prove interesting to see if anyone makes the first move through.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension