Brendan Llewellyn gives both barrels to the widening influence of basis points charging...
Buyers – of anything – should be told the price in the simplest terms possible. For me, that means the price in real money, not dressed up as a percentage or some other camouflage.
Of course I accept that the interest I pay on a loan will be in percentages, but that’s about as far as it should go. When it comes to the cost of running a wrap platform or investment fund, I don’t see a place for percentages.
Yet the percentage game plays on with a sophisticated twist coming from the basis points, or ‘bps’, boys. For many businesses in the financial services sector, going onto a ‘bps’ basis is the road to glory, which may be another way of saying it mightn’t be the best thing for consumers.
What is this 'bps' charging trend
The ‘bps’ world started out as a City thing; now it’s seeping into the parlance of all retail operators to the likely detriment of the transparency mission. Sometimes ‘bps’ are used to make the conversation less gauche – if a banker pitches a £22m fee for a buy-side transaction, eyebrows rise in unison, but 160bps seems more decent.
But the über-professional investor can look after themselves – my main concern here is the retail investor.
Conventions are there to be tested and the percentage game is, to my mind, to be played only when strictly necessary. Otherwise, it’s just a ruse to make a big number look small.
Some may argue a tiered percentage charging structure should allay these concerns, but why create complexity? Some may also argue that costs need to be comparable – and indeed they do, but sample comparisons of the cost of service would suffice.
From what I can see, there are too many distribution players attempting to describe the post-RDR world in comforting 1986 language, expressing charges as a nice chunky 3% plus an annual cost closely resembling trail.
For me, that’s not flexible adaptive behaviour but the behaviour of an Ostrich – an Ostrich with an unhealthy penchant for nostalgia. It’s also inappropriate. One client’s requirements might cost £4,000 to deliver, another’s £1,250 – it’s a matter of crafting the professional service to meet the client need and charging the right amount.
Some fund managers are worth more than others and the same goes for advisers. The market should be given every chance to work that one out – and fixed conventions of 0.75% or ‘three-plus-a-half’ have no place in the face of a potentially-exhilarating market reality. At the end of the day, pricing conventions are the first refuge of the mediocre.
Brendan Llewellyn is owner of Marketing Edge and director of Adviser Home.
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