Despite a new wrap challenging the status quo with its low-cost, flat administration fee, key platform providers say they don’t feel the need to budge. Krystine Lumanta reports.
There’s always a better way of doing things. And according to Krystyna Weston, director of platform industry newcomer simpleWRAP, this is true in the case of administration fees.
Weston says the highly-charged regulatory environment is putting pressure on the entire financial services industry, so “it’s good to be doing something that challenges the status quo and works towards a better industry”.
Charging a flat $1500 administration fee, regardless of the amount invested, Weston is promoting a value set that she calls its “philosophy of charging fairly”.
“We’re the first viable flat-fee, full-custodial offering in the market,” she says.
“It’s not about the quantum of the fee, it’s about the foundation of the values that we adhere to, on the foundation that we built this business upon.
The beauty of that from our perspective is we’re very transparent in our pricing so customers know what they’re paying for’
“And it’s around equitable fees – the right amount charged for the work being done and a fair correlation between the two.
“If a client here has got $100,000 and a client over there has got a million dollars, and they have exactly the same splits in their portfolio and they’re transacting the same way, why is [the latter] client being charged so much more? At an equity level, that doesn’t make sense.”
More than 250 practices are doing due diligence on the product – mostly boutique and independent practices – and advisers within the large dealer groups are also showing an interest.
Some advisers have requested to put their own money into simpleWRAP to test the technology and reporting for themselves, says Weston.
She says that with all the reform and changes happening, platform providers charging percentage-based fees should look at new ways of doing things.
“It’s not that what they’re doing is bad and wrong, it’s just that we’re doing [something] different, fresh, FoFA [Future of Financial Advice]-aligned, simple and transparent,” she says.
“It’s challenging for the other platforms to walk away from their business models because there’s inherent cross-subsidisation.
“The big accounts pay for the small accounts; they don’t have a clean slate, they have big continuous technology spend that they need to invest [in]; they’ve got staff and huge resources that they’re locked into and it’s very difficult for them to walk away.
“The industry has grown up with this business model. It’s there for historical reasons and it served the industry very well up until now. But it is our view that it is an outdated business model,” she says.
“It serves investors with small ac- count balances very, very well, so it’s not outdated for the small balances. It would be challenging to have a flat-fee product for lower account balances; but certainly for account balances of $250,000 plus, it’s our view that there is a better way of doing things.”
She says the FoFA reforms are pushing practices and advisers to think differently as the industry moves through “a revolutionary period”.
“It’s all coincided with challenging investment markets and clients really questioning fees. So there’s FoFA and there’s markets, and the two have collided together.
“And there wasn’t choice before. Yes, there was Praemium, but that moved a lot of the work as non-custodial…into the adviser’s back office, and some advisers absolutely love it and there are others who are saying,‘Hang on a minute, this is a little bit too hard’.”
STICKING TO THEIR GUNS
Craig Lawrenson, head of Asgard, says they are happy with their philosophy and pricing methodology because it has worked for the past 26 years.
“From our perspective, we develop our platform directly through our interactions with our own advisers and the dealers that use our platforms, so we’re not necessarily [interested] in what everyone else is doing, we just get focused on what our clients are wanting,” Lawrenson says.
“You’ll find with our platform, and most other platforms, that we have slid- ing fee scales and fee caps as well, so there is sort of a natural point at which the fee stops.
“And I think the beauty of that from our perspective is we’re very transparent in our pricing so customers know what they’re paying for. Equally, sliding fees also can [represent] good value for clients with $50,000 up to one million, two million, three million dollars, so you can actually provide a more flexible pricing proposition to all aspects of the market.”
SimpleWRAP’s arrival has not prompted Lawrenson to rethink Asgard’s fees.
“We’re very comfortable with the way we charge. It’s transparent, it’s flexible, it offers good value for low balance clients, middle balance clients and high balance clients and on that basis, we’re very confident and will stick to our guns,” he says.
“We’re certainly open-minded in this changing landscape and we will respond to pricing or functionality or whatever, based on the needs and wants of the dealers and advisers that support our business.”
Whether or not flat administration fees were inevitable,“it’s hard to say”,according to Lawrenson.
“I haven’t put a lot of thought into the pricing strategies of competitive platforms.
“I guess for new entrants looking to gain market share, looking to differentiate in a competitive environment, fair pricing differentials may be a way of getting attraction with you and others,” he says.
“Other than that, I see us and our other competitors really dealing to the features and functionality that advisers and their clients need to deliver the advice proposition, so that’s where we’ve been largely competing in the past.”
