Platform (and Advice) Charge - How does this sound...?

[JulianPH]

Hi All

Looking back over the threads discussing platform charges (and advice charges) I have been considering new ideas and wondered how this model would sit with people:

Platform for up to £250k of asset = £30 a month (£360 a year) and includes ISA and SIPP. Over £500k = £720 a year and over £1m = £1,080 a year.

Information and Guidance = £60 an hour.

Advice = £180 an hour.

That is it. All online and phone based with a proper interface.

Obviously the cost of the selected investments is the same as anywhere else, but the concept is fixed cost platform and advice fees rather than a percentage of asset fee for both of these.

I can't see how it would be possible to do it for less than this, but can see it is possible to provide this without people having to pay more than this - providing there is sufficient demand/take up.

I know I will get people saying that this makes it more expensive for those with smaller pot and cheaper for those with larger ones, but I think paying for what you are getting - rather than subsiding others or being subsidised - makes sense.

All thoughts welcome,

Julian

[Phooey]

Why not simply do away with monthlies and just charge hourly for initial and ongoing advice. I have 3 x fees with my investments- wrap fee (Standard Life), advisor fee (0.75%) and then the obvious investment-fund charge. Probably approx 2-2.5% all in? At least that's what I think I'm paying for..

[JulianPH]

Phooey said:

Why not simply do away with monthlies and just charge hourly for initial and ongoing advice. I have 3 x fees with my investments- wrap fee (Standard Life), advisor fee (0.75%) and then the obvious investment-fund charge. Probably approx 2-2.5% all in? At least that's what I think I'm paying for..

Hi, because it is not possible to provide a platform/ISA/SIPP for free!

I get your point, and that is what I am considering doing with an hourly fee for advice rather than a percentage charge. I was trying to advance this by doing the same with the platform. 99p a day is about as cheap as I can see it getting!

[Derek Chevalier]

A few observations

Are your current clients complaining that your exisiting setup (which I assume is % based) is an issue?
How amenable are the platforms to move away from their ~25bps model?
Your model seems inexpensive, what efficiencies are you proposing to undercut the opposition
How price sensitive are typical punters? Typically all in costs pa are over 2% in some cases (very successful wealth manager)
I would argue if you are not providing face to face advice, you will be swamped by those with a bigger marketing budget.

[Phooey]

JulianPH said:

Hi, because it is not possible to provide a platform/ISA/SIPP for free!

I get your point, and that is what I am considering doing with an hourly fee for advice rather than a percentage charge. I was trying to advance this by doing the same with the platform. 99p a day is about as cheap as I can see it getting!

The way I understand it is it's the advisor (IFA) fee that is the only negotiable charge for the clients investment portfolio. I pay 0.75% - negotiated down from 1.0%. I also used to pay 3% initial on new monies introduced but this has also now been changed to 0%. So, 0.75% all in for IFA charge. Personally I'm happy with this (at the mo!) as my pot has grown 20% year to date. I would imagine my advisor has had approx £1500-£2000 from my pot, so I'm sure he's happy too. I have regular contact with him, both face to face and also by post, telephone and monthly email updates with his / their recommendations for changes to funds or rebalancing etc etc. Obviously I'm happy because the pots going up.

Could you not just do similar but adjust the IFA fee (percentage) to undercut the market? Maybe say 0.25% for the pot plus an hourly consultation or 0.75% including any consultations? I would like to be able to pay charges out of a separate account rather than my investment pot so all money is invested but my advisor won't / can't do this

[JulianPH]

Derek Chevalier said:

A few observations

Are your current clients complaining that your exisiting setup (which I assume is % based) is an issue?
How amenable are the platforms to move away from their ~25bps model?
Your model seems inexpensive, what efficiencies are you proposing to undercut the opposition
How price sensitive are typical punters? Typically all in costs pa are over 2% in some cases (very successful wealth manager)
I would argue if you are not providing face to face advice, you will be swamped by those with a bigger marketing budget.

Thanks Derek.

The efficiencies are simply reduced margins for high volumes. I am considering this as a completely new proposition so there are no existing clients complaining, it has just come to mind over a couple of years of reading comments here.

I bought an IFA company with 4,000 clients last year that runs the traditional model and it came with another regulated company that they had not yet done anything with, so I could use this as the flat fee vehicle.

I know of one platform who would be open to this model. I can't name them here right now for obvious reasons but they are relatively new to the market and therefore running the next generation of tech that is causing the main players such issues. They already have distribution deals in place (through a VC backer) that should see £20bn of asset within the next 3 years and I am exploring taking a 25% stake in the company.

Price sensitivity - this is what I am trying to gauge here. I think this model takes the moral high ground, but that is useless if there is not demand. Demand could be adviser driven as well as D2C when it come to the fixed fee platform/ISA/SIPP.

I could happily chuck a few million at marketing if I thought it was worth it, but my problem is I don't think it is. My concern is that for most people a small sounding percentage is simply not a problem as they don't realise the serious compounding effect. 2% a year for 25 years is 50% on a simple basis. When compounded it is over 100% in terms of reduction in yield.

So, whilst anyone who knows what they are talking about would realise it was an incredible development, I just don't this is would have sufficient mass appeal.



Edited for stupid typo!

Edited by JulianPH on Sunday 18th June 10:40

[JulianPH]

Phooey said:

The way I understand it is it's the advisor (IFA) fee that is the only negotiable charge for the clients investment portfolio. I pay 0.75% - negotiated down from 1.0%. I also used to pay 3% initial on new monies introduced but this has also now been changed to 0%. So, 0.75% all in for IFA charge. Personally I'm happy with this (at the mo!) as my pot has grown 20% year to date. I would imagine my advisor has had approx £1500-£2000 from my pot, so I'm sure he's happy too. I have regular contact with him, both face to face and also by post, telephone and monthly email updates with his / their recommendations for changes to funds or rebalancing etc etc. Obviously I'm happy because the pots going up.

Could you not just do similar but adjust the IFA fee (percentage) to undercut the market? Maybe say 0.25% for the pot plus an hourly consultation or 0.75% including any consultations? I would like to be able to pay charges out of a separate account rather than my investment pot so all money is invested but my advisor won't / can't do this

Usually that is the case, I am in a different position to negotiate at an institutional level though.

If your happy with the adviser charge your paying that is great. It is all about value rather than actual cost - and it sounds like you are getting great value at a price point you are happy with.

I was exploring a different pricing model rather than a cheaper version of the existing one.

As I said above, I don't think there is actually a sizeable enough market for this right now, that's why I was testing the water here before actually putting any serious time and money into it.

Cheers

[NickCQ]

Derek Chevalier said:

I would argue if you are not providing face to face advice, you will be swamped by those with a bigger marketing budget.

This seems like a key point to me. I've never paid for financial advice (excluding HL and fund charges), but if I ever do, I would want to do it face-to-face. I'd be happy for the nuts and bolts to be handled by one of the big platforms - surely they have massive economies of scale and much bigger budgets to invest in the user interface and so on?

However, the hourly rate seems very low - I have paid plumbers £90 for half an hour in the past!

Edit - what's the difference between the £60 and £180 rates? Is this about legal concerns and whether I would be entitled to reliance on the advice?

Edited by NickCQ on Sunday 18th June 11:49

[Derek Chevalier]

JulianPH said:

Thanks Derek.

The efficiencies are simply reduced margins for high volumes. I am considering this as a completely new proposition so there are no existing clients complaining, it has just come to mind over a couple of years of reading comments here.

I bought an IFA company with 4,000 clients last year that runs the traditional model and it came with another regulated company that they had not yet done anything with, so I could use this as the flat fee vehicle.

I know of one platform who would be open to this model. I can't name them here right now for obvious reasons but they are relatively new to the market and therefore running the next generation of tech that is causing the main players such issues. They already have distribution deals in place (through a VC backer) that should see £20bn of asset within the next 3 years and I am exploring taking a 25% stake in the company.

Price sensitivity - this is what I am trying to gauge here. I think this model takes the moral high ground, but that is useless if there is not demand. Demand could be adviser driven as well as D2C when it come to the fixed fee platform/ISA/SIPP.

I could happily chuck a few million at marketing if I thought it was worth it, but my problem is I don't think it is. My concern is that for most people a small sounding percentage is simply not a problem as they don't realise the serious compounding effect. 2% a year for 25 years is 50% on a simple basis. When compounded it is over 100% in terms of reduction in yield.

So, whilst anyone who knows what they are talking about would realise it was an incredible development, I just don't this is would have sufficient mass appeal.



Edited for stupid typo!

Edited by JulianPH on Sunday 18th June 10:40

Have sent you a PM

[JulianPH]

NickCQ said:

This seems like a key point to me. I've never paid for financial advice (excluding HL and fund charges), but if I ever do, I would want to do it face-to-face. I'd be happy for the nuts and bolts to be handled by one of the big platforms - surely they have massive economies of scale and much bigger budgets to invest in the user interface and so on?

However, the hourly rate seems very low - I have paid plumbers £90 for half an hour in the past!

Edit - what's the difference between the £60 and £180 rates? Is this about legal concerns and whether I would be entitled to reliance on the advice?

Edited by NickCQ on Sunday 18th June 11:49

Whilst in the everyday word advice/guidance/information are interchangeable, this is not the case in financial services - hence the 2 different charge rates.

Advice has a specific meaning within financial services that is distinct from information and guidance. Basically advice comes with full liability for its suitability, where information and guidance (generally not recommending a particular product) does not.

[JulianPH]

Derek Chevalier said:

Have sent you a PM

Just got back to you.

[JulianPH]

NickCQ said:

This seems like a key point to me. I've never paid for financial advice (excluding HL and fund charges), but if I ever do, I would want to do it face-to-face. I'd be happy for the nuts and bolts to be handled by one of the big platforms - surely they have massive economies of scale and much bigger budgets to invest in the user interface and so on?

However, the hourly rate seems very low - I have paid plumbers £90 for half an hour in the past!

Edit - what's the difference between the £60 and £180 rates? Is this about legal concerns and whether I would be entitled to reliance on the advice?

Edited by NickCQ on Sunday 18th June 11:49

You are right in saying you have not paid for financial advice. You have taken on the responsibility for all this yourself using HL - and paid then for the privilege. Gringe R offers the same - with advice - for less money.

HL are good, but certainly not close to being lower cost, let alone cheap!

[JulianPH]

Sorry NickCQ, I misdirected my response to you (or "misspoke", as certain fat raciest people like to say!).

In order to remain independent I won't reveal the politician's name here, but you can find out more looking at the Diane Abbot thread.

[FredClogs]

What does it matter if it's a fixed fee or a percentage? You still have to pay. The benefit of a percentage is that you can start investing with relatively small sums of money - you'll be cutting out a large part of the market i.e people who might want to only start with investing a few £k in a SIPP or ISA, it would be cheaper for them to go to best invest or HL - where they can get a lot of guidance education for free.

As someone who spent two decades letting out a little bit of wee at the thought of savings or pensions but at 40 decided I must get to grips with it, I have come to realise that the assumed "complexity" in investing and pensions savings isn't really there, the whole industry relies on it's customers being scared to ask what the wizards are actually doing behind the curtain. Anyone with a half decent brain could spend a week doing the research and build a half decent investment portfolio - they may not understand all the finer details of the legislation and regulations which run the industry but in terms of buying in at the risk level they wanted and selecting a portfolio that suits them - I reckon they could do it. If I were a financial advisor I think I'd build my business around charging people small amounts for support information, education and choices (I believe that's why HL are so popular, although granted 0.45% isn't a small enough amount).


Ok, so I did a Google...

Average UK savings pot... £26k

https://moneyfacts.co.uk/news/savings/savings-of-o...

Average UK pension pot ~ £50k

http://www.thisismoney.co.uk/money/pensions/articl...

So you can see your charges will, for the average consumer, outstrip the "expensive" HL fixed fee %.

Edited by FredClogs on Tuesday 20th June 09:35

[NickCQ]

JulianPH said:

You are right in saying you have not paid for financial advice. You have taken on the responsibility for all this yourself using HL - and paid then for the privilege. Gringe R offers the same - with advice - for less money.

HL are good, but certainly not close to being lower cost, let alone cheap!

You overestimate the size of my portfolio (hint: it's all in an S&S ISA)

[Derek Chevalier]

FredClogs said:

If I were a financial advisor I think I'd build my business around charging people small amounts for support information, education and choices (I believe that's why HL are so popular, although granted 0.45% isn't a small enough amount).

Financial advice/planning is a whole lot more than just investments.

[FredClogs]

Derek Chevalier said:

FredClogs said:

If I were a financial advisor I think I'd build my business around charging people small amounts for support information, education and choices (I believe that's why HL are so popular, although granted 0.45% isn't a small enough amount).

Financial advice/planning is a whole lot more than just investments.

Fair enough, I still don't think for the vast majority of people, i.e the mass market the OP seems to want to appeal to, this idea of a fixed fee will be attractive.

[Hol]

Sorry for the spam, as I've not touched on RDR since its gone live, but I do have a quick question, as I cant see that its been answered yet (it may even be obvious to everyone else).


in the proposed fixed-fee model in the first post, what portion is being passed up the line to the underlying fund management companies/Fund providers?

(Obviously those guys still have to pay their own Fund Managers, Analysts, TA, FA, Custody, Depositary, etc.).


Market share in this sector is hard won and most propositions require a significant chunk to capitalise the cost over 5years or more. The 'C' platform for example took many years to reach profitability.

[Cheib]

JulianPH said:

I know of one platform who would be open to this model. I can't name them here right now for obvious reasons but they are relatively new to the market and therefore running the next generation of tech that is causing the main players such issues. They already have distribution deals in place (through a VC backer) that should see £20bn of asset within the next 3 years and I am exploring taking a 25% stake in the company.

Edited by JulianPH on Sunday 18th June 10:40

I'd doubt there claims of £20bil of assets within three years...the Platform market has had many new entrants over the last few years whose main selling point has been price....how many of them have got anywhere near that number ? To reach £20 bil of assets that probably means you'd actually need to get circa ££750 mil to £ 1bil of new client money monthly for three years as obviously people draw on pensions etc.

From what I understand the race to the bottom in terms of fees has slowed somewhat as a lot of the platforms that entered the market and went after pricing are struggling to break even.

You surely also have to think about the financial standing of the platform from your clients perspective (and yours) ....yes it may be cheaper but unless the business has proper longevity putting your clients assets on a platform that has more risks than another could end up with some disenchanted clients if it goes wrong.

I'd also say that having better/cheaper tech and lower pricing might sound good against the incumbents but that's not really a USP and if this company can do it I suspect others can!

As someone who is also a user of platforms I may be slightly unusual but price isn't everything for me....service, information and flexibility are very important. I know for most people price is everything though.

[anonymous-user]

If you run a model where you charge an hourly rate distinctly for advice, it might start to fall foul of VAT in a way that's detrimental, compared to pulling a % or two from the fund in the course of your selling an exempt product.