As platforms develop more low-cost options, fees can’t be assessed in isolation and must be assessed against the needs of the individual client, according to analysis from SuitabilityHub.
Recep Peker, founder and managing director of the platform and managed account researcher, said cohort level pricing has added a new level of complexity to assessing fees for advisers.
“When things are complex, they end up becoming a bit less transparent,” Peker told the Professional Planner Researcher Forum, presenting fresh research to the event in December.
“Don’t just look at the headline admin fees, you have to go beyond admin fees to find appropriately priced platforms.”
The nuance comes as platforms continue to evolve their pricing models to be competitive with each other – as well as with industry funds – and the new pricing models are designed around specific cohorts, Peker said.
“With these products what you find is that depending on who the customer is, it can be the cheapest well-priced solution or it can be an inappropriately priced solution where other offers are more relevant,” Peker said.
An example of this is in the high-net-worth space where some platform admin fees are capped.
“They’re designed in a way where once you reach a certain balance you don’t pay any additional cost,” Peker said.
“Some advisers look at this and they say this is unfair because it means lower balance clients are subsidising wealthier clients who aren’t paying for those admin fees anymore.”
Instead, Peker said the reality was platforms have shifted their profit margin in the space that might leverage other fee levers like transaction fees.
“Just looking at admin fees of a platform is not enough,” he said.
“The platforms at the top end to get about 5 per cent to 20 per cent cheaper depending on the size of the business they’re working with but that said, the key story is a platform might look expensive from an admin fee perspective, it might not necessarily be so when you factor in the transaction costs as well,” Peker said.
Peker noted that there might be client benefits to higher costs models, coming back to the founding purpose of the company which was to identify whether the client was gaining sufficient value from the extra benefits in a higher-cost service.
“There are an increasing [number of] platform solutions that are targeted at the lower end of the market, this is partly in response to industry funds,” Peker said.
“There’s also an added benefit that platforms are trying to deliver advisers by saving ‘don’t use two, three, four different platforms and super funds to meet your clients’ needs – that’s inefficient – we will give you products and investment menus where you can service your whole client set in once place’.”
However, as platforms do release more lower cost options there is a client expectation that paying fewer fees must be better which may not even be the case.
“What’s happened is the platforms have shifted their margins away from the admin fee into the investment management fee of the SMA [separately managed accounts] in these products,” Peker said.
“Once you factor in the total SMA fee and where that margin has gone, the zero cost menus don’t always look as cheap as they are. They make sense at small balances – $50,000 to $100,000, but by the time you’re up to $450,000… when you add the portfolio management fees all of a sudden maybe you need to look beyond these menus to the other offers offered by platforms.”
