Financial planning firms, particularly those not aligned with banks, are eyeing options to circumvent the high costs of platforms, says the head of online investment start-up Stockspot.
Chris Brycki, founder and chief executive of Stockspot, which follows a primarily direct-to-consumer business model, says he is also being approached by financial planners.
In recent weeks, four non-aligned financial planning practices have contacted him, “trying get off the big platforms because they realise the costs aren’t great”.
“They say it’s interesting because they often turn away smaller clients because they can’t justify speaking to someone in the lower tens of thousands of dollars [of investment capital],” Brycki says.
“This allows them to provide advice to clients of that scale – that’s where this could potentially fit in.”
Along with Stockspot’s particular model of providing access to exchange traded funds, he also refers to the disruptive potential of ASX mFunds, separately managed accounts (SMAs) and self managed super fund providers.
A new study from Investment Trends supports Brycki’s sentiments about financial planners seeking greater value. While this only considered the platform universe and not the alternatives listed above, it found that 18 per cent of planners who play some role in platform selection intend to look for a new or additional platform in the next 12 months.
“Following FoFA, and perhaps as a consequence of the introduction of the best interest duty, [planners] now have increasing freedom,” says Investment Trends senior analyst Recep Peker. “With a quarter of planners saying they stopped investing new client flows via at least one platform, it’s evident that planners have used this increased freedom to change the mix of platforms they use, focusing even more on the platforms that best address their needs.”
Costs are too high
While platform fees are decreasing slightly due to competitive pressure and regulatory changes, Brycki believes these are still unjustifiably high.
“They’ve all basically charged an asset-based fee. The big platforms that originally charged upwards of 50 basis points are now coming down under 40 basis points…and some separately managed accounts are coming down to 25-30 basis points, but even that sort of fee is too high.
“If it was any other industry, there would be no justification for doing it on an asset scale basis,” he says.
Brycki believes that within an asset-based model, an asset-based fee is necessary. “But where you’re a provider of technology, I think longer term, they’ll all have to move onto a fixed fee or a complexity fee basis.”
“It’s a beautiful business model for them [the banks] but not a great model for clients – that’s evidenced everywhere.
“The main reason why banks were so against the [Future of Financial Advice] best interest provision in itself…is that, hand on heart, it’s very difficult for any planner within a bank to recommend the bank products, because they are extortionately expensive.
“If all of the independent [financial planners] are starting to look around at other options, I think that’s a great thing.
Technology savings not being shared
As increasing amounts of the banks’ data and software are shifted into cloud-based architecture, their associated infrastructure costs are falling dramatically.
“But at the moment those savings are not being passed on.
“As soon as more guys like us come along…and [we see] more administration providers that are fixed fee, they’re going to come under more and more pressure.