The platform market is reducing fees for lower-end account balances, however, higher-end clients are still being overcharged due to a lack of price competition, according to a simpleWrap director.
“There’s very little, if not nothing happening in the space we’re playing in – we’re not seeing competitors make any price changes at the upper end,” simpleWrap director Krystyna Weston told InvestorDaily.
“All the game playing is at the lower end.”
New flows into platforms were low, therefore a drop in platform fees for wealthier clients was unlikely, Weston said.
She said larger institutionalised platforms also had models based on cross-subsidisation. “I can’t see they’d be in a hurry to reduce [prices],” she said.
“Clients are very frustrated about the fees they’re paying and advisers are losing clients because they’re giving away more than half of their annual earnings in fees.”
Certain platforms offering an attractive reduced fee of 30 basis points, for example, were “smoke and mirrors repricing” as they did not deliver a full-service capability and instead cut out direct share trading and limited the managed funds menu, she said.
In the next month, simpleWrap is expecting to halve its transaction fees from $22 to $11 and cap the custody fee to under $3000. Having the ability to drop fees was vital as a platform provider, Weston said.
“As we get efficiencies, as our technology improves, as we get new clients on board and as market competition shifts, we’ve got room to move as appropriate,” she said.
“The intention was always to stay competitive, relevant and to have a fair price for the work being done. If it means that over time we reduce that high-level fee, that’s what we’ll do.”
On the other hand, netwealth Investments executive director Matt Heine said it was likely platform fees would drop this year.
“It’s pretty competitive at the moment so platforms are certainly looking at each part of their offering and making sure it does meet market [needs],” Heine said.
“Some have been faster than others, but I think ultimately the Future of Financial Advice reforms are going to drive a lot of reduction in price across the board.”
There was stronger demand from advisers and clients for a “more for less” deal when it came to platforms, he said.
“While the price war started last year, there’s still going to be continued pressure on margins so it’s important now for platforms to cater for the different market segments.
“It’s important that low-cost clients get the benefit of a price reduction, but also clients on the higher end.”
The latest Investment Trends platforms report found $130 million was spent on platform technology in 2011 alone.
“It’s important we can recoup some of that, but actually make sure we do provide a well-priced product and service as well,” Heine said.
“I think people forget that there’s a lot of work that goes into running a platform. It’s an incredibly expensive service to run and there’s a lot of pressure on innovation and to bring out new features and functionality all the time.”
Netwealth is looking to reduce its price further and provide more options for less, following the recent reduction of its cap of $3 million to $1 million.
