LOOK AT TOTAL COST
Peter Chun, general manager product and channel development at Colonial First State, says the headline grabber of “flat dollar” requires extra caution as “it boils down to just quoting the admin component”, whereas financial planners must compare platform fees in totality.
“This particular wrap provider has come out and said they’ll charge a flat-dollar fee; but that $1500 that they quote per annum is only the admin component. If you then have to add on the investment fee, which typically can be up to one per cent of the assets that you invest into, then it starts to add up quite significantly,” he says.
Chun says the target market of a platform provider determines the way fees are charged.
“Across the industry, you have most people charging fees, which are percentage-based, and that’s what we do,” he says.
“It’s a particular pricing strategy that a provider takes and, ultimately, there are providers out there that do fixed-dollar, they do percentage-based; their pricing strategy’s fixed-dollar, but when you buy the assets, it’s percentage-based anyway.
“We have a view with FirstChoice, [to] have a very simple approach of one fee, which is admin and investment, and it is percentage-based…on average, the entire platform is less than one per cent as a total fee.
“It’s very competitive at all balances and we’re very proud to deliver that sort of price given the scale of our platform, which is close to $50 billion now.”
Underlying capital is another factor Chun raises.
“There’s no point, [if ] you come out with a really competitive fee but you don’t actually then have the ability to reinvest and continue to develop the platform,” he says.
“It’s about having the underlying capital to continue to invest in the platform, which is important because platforms are very, very expensive to maintain and service.
“So the issue for financial planners will be to be aware of providers; and having a flat fee might be interesting or [be] able to grab a headline, but do they have the support services, do they have the breadth of call centres, the adviser support areas?”
CHANGE AHEAD FOR ALL
Over the next 12 months, platforms in the market will continue to develop their value propositions and products as a response to client need, not necessarily as a direct response to a single competitor, according to Justin Delaney, head of insurance and platforms, Macquarie Adviser Services.
“Advisers are looking to drive efficiency in their practices, and the end cost to clients is driven by a mix of how efficient the platform is going to be within their back office and the fees that are charged by the platform,” he says.
“It’s a combination of both, I think, that will determine what is the best value ultimately for the investor, not simply the admin fees that are charged.
“Pardon the pun, but I don’t think it’s as ‘simple’ as a fixed fee necessarily. The reality is that different platforms [have] all got different strengths.
“There’s going to be different models out there, depending on the client need.”
Delaney says Macquarie Consolidator, which uses a portfolio-based pricing model, charges between “$700 and $3300 maximum per client, and that’s before any grouping discounts”.
“Overall, if you look at the value delivered to a client, it’s pretty good in the context of the service provided and the richness of the functionality.
“Given that it is capped, that really does change the dynamics in the market,” he says.
“Our review of the market [shows] there’s no doubt that we’re seeing an increased need for value and being able to demonstrate value across all aspects of the value chain when it comes to advice processes – and platforms aren’t immune from that at all.”
However, Weston says a capped fee is “not the same” as simpleWRAP’s fair pricing model.
She expects simpleWRAP to receive negative comments – particularly that the cheap price denotes a cheap product.
“Guys, we know what it costs to run,” she says.
“Our partner [Equity Trustees] has been around for two centuries and it’s a very conservative, publicly listed trustee company that knows what they’re doing.
“It’s not cheap, it is fair value. But you can’t just win the game on price if the rest of it doesn’t stack up.”
As adviser business models continue to evolve, it is inevitable that platforms will also change and evolve.
Delaney says: “There’s an increased desire from many advisers and clients to include equities in their platform portfolios and I think traditional models, depending on how they’re structured, haven’t been the most effective from a value perspective in the past.”
