For platforms charging a percentage, profits come from a combination of business efficiency, the right balance of larger to lower value pots and good investment returns – the last element being one that a platform cannot generally control or influence.
With a flat fee, as long as each client covers their own platform costs plus a reasonable margin, it is possible to create a solid foundation for a scalable and profitable business over the longer-term based on fees that could be significantly lower than 35 bps for many clients.
It is also worth noting that the 35 bps average is very much an advised market ‘thing’. In the direct-to-consumer space, flat fees are growing in popularity and average platform costs tend to be lower for medium to larger portfolios. With naturally lower front-line customer service and acquisition costs for platforms in the advised market, and administration costs roughly the same across both, this is a strange phenomenon.
For smaller investors, flat fee platforms do tend to look expensive. But a pot that will never be added to is different to a pot that will receive top-ups each year. With the latter, over a reasonable investment time frame, the flat fee could still be a better option overall. Deciding what works best for a client is not usually a simple one-year calculation.
The longer percentage fees at 35 bps are seen as being “about right”, the longer the market will continue to pay that price. Unless it is really challenged, it will never change.
Sara Wilson is head of platform proposition at Alliance Trust Savings
