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

[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!

[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

[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.

[JulianPH]

Cheib said:

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.

They are doing it at institutional levels, not going to the man/woman on the street.

They have just (yesterday) been reported in the press as doing a distribution deal with IFSL, with the first sign up being Tenet Group. There are many others following.

http://citywire.co.uk/new-model-adviser/news/tenet...


The mainstream platform are all spending hundreds of millions bringing their platform tech up to date. Hubwise is already at the next generation level today and with IFSL they can now turn portfolios into OEICs on the platform. Next generation platforms are a world away from what we are used to now.

[JulianPH]

Cheib said:

So they're signing up individual IFA's for their book of business ? I'd still stick with my doubts about how long it will take them to get to that scale. Although I'd admit £500 mil in 12 months is a very good start! I've no idea about your point about turning portfolios into OEIC's though...so maybe that's the USP ?

There are plenty of other platforms that target IFA's exclusively aren't there ?

Not, not individual IFAs - Nationals, Networks and DFM providers.

The portfolio to OEIC is one USP, but the level of tech is way in advance of the mainstream platforms and the charges are the most competitive in the market.

I know of one DFM looking to move a £9bn book onto the platform in pretty much one institutional transaction for the increased tech and cost savings.

I digress now. Obviously my original suggestion is not required. I could do a bps model with a cap, but I don't think that would be well received either.

To this extent I'll leave the idea here. What do people want...?

Julian