Fees will be stripped back to naked pricing
Naked pricing will be the next generation of adviser fees which will remove all hidden fees, according to WealthO2.
Naked pricing stripped out fees exchanged between third parties in the value chain of advice and disclosed only those fees payable to clients on a clean basis, void of revenue bias or conflict, the wealth management software solutions firm’s managing director Shannon Bernasconi said.
Bernasconi said the culling of grandfathered commissions and the code of ethic’s standard that requires advisers to act in a client’s best interest, and new technology would shift advisory practices towards new pricing models.
She said the increasing prevalence of naked pricing would shift the margin from product – and commission – to the adviser and shared equity licensees, which would be a reorganisation of the value chain.
“It’s on the basis of transparency and the fee for service model, that the naked pricing model delivers client benefits as well as a shift of margin away from products and commissions to the adviser,” she said.
“A key issue with the old pricing model is that it’s not clear to a client who is taking what in the value chain. This results in conflicts of interest and ultimately the client paying too much for the service being afforded.”
Bernasconi noted that fees exchanged between third parties in the value chain included grandfathered product trail commissions, volume-based bonuses, badged platforms, shelf platform administration/separately managed account (SMA) fees, cash platform fees, and platform in-house product costs.
“Naked pricing effectively removes all of these hidden fees… [It] is about charging a fair price for the service being offered, with no conflicts of interest or revenue sources,” she said.
“With the potential of increased licensee fees in lieu of removal of trail commissions and volume based/ badged platform kickbacks, the emergence of a co-operative licensee services model is putting pressure on the traditional dealer group value proposition, in addition to the increase in self-licensed advisers.”
Bernasconi noted that this pricing framework, however, would present different issues and/or benefits depending on their respective part of the value chain.
Model managers, for example, would gain greater flexibility from the removal of SMA fee as it would give the ability to negotiated fees per Australian Financial Services Licensees for specific mandates, while for fund managers, the removal of shelf fees shifts to a choice for costs to them in the form of rebates processed to the end clients.
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
