Is a 10bps reduction enough to prompt an adviser to review their fund selection? Henry Brennan finds out if super clean is too much bother.
The current slew of super clean share class offers stand to fall short of providing a worthwhile incentive for advisers to switch platforms, according to research from CWC, in co-operation with IFDS.
The report – Call my Bluff – found that roughly one third of advisers would review their fund selection in response to a 10bps reduction, broadly the sort of terms being brought to market by providers such as Standard Life and Investec.
The survey found no advisers that would be moved to review their selection for a discount of 5bps.
Is the move to super clean worth the trouble?
A reduction of 10bps would prompt 33% of advisers to carry out a review, 25% would require a minimal 15bps reduction while 8% would hold out for a 20bps discount.
Tellingly, 34% of advisers are absent from the results running up to 20bps, suggesting more than a third would not even consider a review unless the discount was upwards of 20bps.
A discount of 10bps will not be enough to prompt the majority of advisers to even consider reviewing the selection. Even if the terms of preferential share classes were to double, a noticeable proportion would remain dismissive.
If super clean exclusivity agreements between platforms and fund managers were to become the norm, a part of this review would often involve weighing up the benefits of switching platform to secure preferential share class deals.
Worth the hassle?
Advisers are sceptical as to whether the kind of terms currently coming to market would prove enough to prompt a switch to a different platform under these circumstances.
Evolve Financial planning director Jason Witcombe said: "If there is a meaningful saving for our clients for moving platforms, i.e. several hundred pounds a year or more, then we would be open-minded to considering it.
"The last thing any client wants is to be constantly moving from one place to another for a very modest saving."
He added: "Moving platform is a hassle for the client and adviser but if there is a meaningful difference, it is worth exploring. However, depending on their charging structure, it would not be unreasonable for an adviser to charge a client for moving a client from one platform to another because it is a pretty onerous process."
Adviser Home director Brendan Llewellyn said there is little to suggest price will become a primary motivator among advisers.
He said: "If anyone is saying they would respond to a 10bps reduction, they must be assuming all things are otherwise equal. Advisers will have preferred platforms. It is conceivable that a fund with a 10bps reduction will be offset by the cost of the actual platform.
"You cannot be a quality leader and a price leader. Will advisers start to make their decisions primarily based on price? Absolutely not."
Lowes Financial Management senior technician Barry O'Sullivan explained that, while cost is not the primary consideration, super clean deals are often a reflection of a strong business model.
He said: "When we select a platform, fund choice is a given. It is actually the functionality and service of the platform that counts. We would not look to change platforms because a particular fund is offering less of a discount than it was elsewhere. We are not chasing the cheapest option, we are looking at performance first.
"We can understand this move to super clean where platforms are trying to get discounts based on their buying power. It would highlight to us that the platform is a good place to do business. I think what Standard Life is doing is a good thing."
In light of the difficulties associated with securing exclusive super clean deals, it is hard to see enormous benefits. An increase in the number of different share classes will complicate the re-registration process, advisers are not minded to chase a 10bps reduction enough to base platform selection on it, and clients may end up getting charged if they do insist on chasing preferential classes offered by other platforms.
If the purpose of super clean is to cut costs for existing clients, then it would be hard to argue. If it is about drawing new business, particularly in the context of asset managers refuting the idea that platforms drive inflows, it is starting off from a position of weakness.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till