Adviser slice of platform pie shrinks

There’s a squeeze on platform fees and with the amounts charged by platform providers to fund managers steadily increasing, it’s the planners who are bearing the brunt of the reduction.

In particular, since the introduction of the new generation of ‘baby’ wraps and ‘low cost’ master trusts, fees paid to planners — as well as fees charged to clients — have fallen.

ING head of fund management markets Inbam Devadason says the trend to drop fees is being driven by competition.

“Part of this pressure is coming from the new platforms that are being offered,” he says.

“The other pressure is that fees and charges are on the political agenda and that has a flow-on effect.”

Devadason says in the 1980s fund managers were the driving force in financial services. In the 1990s distribution was king. Today, it is consumerism.

“Consumers want to know the value of using a service. They will want to know what is being factored into the fees,” he says.

AXA head of wealth management Steve Burgess also agrees competition is affecting fees.

“I think pricing will come under a lot of pressure and that pressure will drive things down further,” he says. “But will it end up in a price war between the platform providers? I doubt that as there is too much at stake.”

Those platforms with scale will have leverage when it comes to fee levels, he says, as they will be able to push margins and therefore prices down.

“We are seeing margins being squeezed along the value chain, but platform providers will gain more of the margin and take from the asset managers,” Burgess says.

In the past, it was common practice for platform providers that managed to squeeze any savings out of asset managers to think of passing on any benefits to advisers first.

This could be becoming less common.

Earlier this month, Macquarie started paying rebates it had obtained from fund managers directly to its platform clients.

Macquarie Advisory Services head of product and marketing Matthew Rady says the rebates come as a result of negotiations with the fund managers.

“Where we have been able to use our purchasing power to obtain a discount, that rebate has been passed on to the client,” he says.

“We charge a flat fee for offering the fund, but the rebate of that is what is being passed on.”

The rebates have been between 5 to 13 per cent off the management expense ratio (MER) and will be paid on a quarterly basis.

The fund managers giving rebates are also being disclosed on clients’ statements.

Asked why the rebates aren’t being paid through advisers, Rady says the fund managers were comfortable with them going direct to the client.

“We felt it was the clearest way for the investor to receive the benefit,” he says.

“The advisers are renumerated by the fund managers in other ways.”

Despite the general fee squeeze in platform market, there are still pockets where costs appear to be going up.

In particular, Dexx&r managing director Mark Kachor says there has been a trend for fees to edge up on badged platforms offered by dealer groups.

There are currently about 60 badged platforms, mainly from BT and Macquarie.

“When a platform is badged by a dealer group they tend to get a cut of the fees,” he says.

“The dealer gets the larger cut, which means the client fees go up.”

The control of fees and charges on badged platforms by dealer groups has given rise to another interesting problem.

“The flow of information on the fees and charges from these badged platforms has become restricted,” Kachor says. “Most dealerships do not want their fees and charges open to comparison.”

He compared the current situation to the bad old days when fund managers objected to their products being compared side-by-side.

“Under the current regime, there is no compulsion to reveal any data,” Kachor says.

“The branded platform manufacturers don’t mind their products being compared, but we have 60 products on the radar that are no longer being compared.”

Kachor is quick to point out some dealer groups with badged platforms, such as Count, provide full disclosure on the operation of their platforms, but they are in the minority.

“Traditionally it was always the manufacturer setting the fees and the boundaries, but with badging it is up to the individual dealer group,” he says.

Outside of the badged sector, the forecast is for continued fee reduction, although this may came as an ongoing trickle rather than a major rush.

ING’s Devadason says: “Over the next two years, we will expect fees to be cut by 10 basis points and then proceed steadily down to some sort of level that will plateau.

“One thing the platform manager and the dealer group will manage is the adviser fee.”

Devadason says there will be a change in the way fees are charged in the future, with an unbundling of the dealer group and adviser fee.

“You could see between 1 and 1.3 per cent of fees being stripped out as they are unbundled, but that figure would include the cost of advice,” he says.

“The danger is some people won’t see fees in the offering and therefore won’t be able to undertake a comparison of services being offered.”