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AXA Elevate slashes wrap prices in bid to win platform war

by Jun Merrett on Nov 26, 2012 at 09:52

AXA Elevate slashes wrap prices in bid to win platform war

AXA Wealth is to cut the cost of its wrap platform Elevate by around half for the post-retail distribution review (RDR) world.

From 1 January Elevate will charge under 35 basis points (bps) for assets between £25,000 and £100,000. Assets of £500,000 and over will be charged under 30 bps.

Under Elevate’s current 10-tier charging structure the first £50,000 of assets are charged 65 bps, with assets between £500,000 and £749,999 charged 0.45 bps.

Jason Witcombe, director of London-based Evolve Financial Planning, which uses Elevate, said the new charges would make the platform more competitive and suitable for clients with smaller portfolios.

‘With the cut to the lower figure, Elevate is taking a view that there’s a lot of smaller clients out there and advisers need to find a better home for them post-RDR,’ he said.

‘The charges sound very good and competitive; at £25,000 65 bps just isn’t competitive but 35 bps is.

‘There is a downwards pressure on all platforms at the moment, 50 bps used to be the norm but now it’s becoming 30 bps.’

A spokesman for AXA Wealth said: ‘The current structure is quite complex so we are now launching a more straight forward tiered approach. Winning the platform war is key for AXA Wealth. The new model will refine the “what you see is what you pay” pricing ….to give customers a more competitive charge and a simpler structure.’

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49 comments so far. Why not have your say?

Ross Glanfield via mobile

Nov 26, 2012 at 10:12

Unfortunately here is yet another platform provider trying to reduce their addiction to bps rather than kick the habit completely. The problem reflects the huge amounts of legacy business that the main platform providers have on historical bp-based charges which they cannot and do not want to lose. The only solution in a post-RDR world is a pound-cost platform but only a new market entrant with a pure fee-based vision would dare to launch one.

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Dominic Thomas

Nov 26, 2012 at 10:15

The blood letting begins... the irony of ending decades of "free advice" moves to a fight over how close to free is possible. Profit and sustainability are the most important forgotten money truths.

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Gillian Cardy

Nov 26, 2012 at 10:16

@Ross : I thought someone already had done it ...

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Confused

Nov 26, 2012 at 10:24

I don't see anything to be negative in this article! The lower the cost the better. We are in a low inflation environment, every bit of additional cost has an impact, including our adviser fees. The price war started a long time ago and it will affect every single commoditised part of the advice chain.

The clue for the survival of IFAs is in the last sentence, making sure we are not a commodity like the wraps or funds.

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Martinifa

Nov 26, 2012 at 10:25

As we all head like lemmings to the cliff. No good will come of this, cost will be driven down until there are so few offerings left and service levels non-existent.

Then there will be an advice gaband product gap never envisaged by the regulator resulting in another review, to review the review of the review as to how we got into point.

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Adam Fearn

Nov 26, 2012 at 10:27

@Ross and @ Gill - yes I believe Alliance Trust offer a flat fee proposistion

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David Cathcart

Nov 26, 2012 at 10:32

Well said Ross, when has the value of a portfoio got anything to do with the admin function of a platform. Does the admin cost iincrease when the market goes up - no I thought not.

Yet another failing platform

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Kate Brookes

Nov 26, 2012 at 10:32

Why not a transparent cost per transaction, or an ongoing fee in real money? As far as most clients are concerned bips could be magic beans. It's like some alternative universe, no-one goes to Tesco to buy a can of beans and is asked to pay in bips. No, it's down to us advisers to do the transparent ,jargon free bit ,will we bill Axa for translation services?

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Aristotle

Nov 26, 2012 at 10:36

It would be interesting to know whether this charging structure is actually profitable and if not, what assets under administration AXA would need to break even. Is this actually the last throw of the die? Is this being bankrolled by AXA to try and knock out a few competitors? Good news for clients in the short term but II will be asking AXA to demonstrate sustainability.

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Hugh Malcolm Morton

Nov 26, 2012 at 10:36

Only those who can afford to lose money will go down this route, so it will be the life company owned wraps, and they will do this to get share, so they can push the prices up later. Yet again they are trying to 'buy' business but not providing service and guaranteeing client security for those that introduce them.

For the advisers the only sensible option is to pick those that will provide service and security for the IFA and the clients.

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Rayner

Nov 26, 2012 at 10:53

Good if it works - but the proof in the pudding will be if axa can deliver on their 'service' - it isnt always about price it is very much about the business tool a platform can provide and how this stacks up - price is only 1 entry on the pro/con list?

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Stephen Ng

Nov 26, 2012 at 10:56

In the race to get to the bottom (price), profitability will suffer (thats if there is any profit even now!) and platforms will fold. That is not in anybodys interest, least the clients.

Lets place a greater emphasis on the value a platform provides to our clients as only then will they see the merit in using them and paying any elevated fees (no pun intended) whether they are in pounds or bps. Clients only bleat on about price if we dont make sure they understand the value they are getting.

So make sure you recommend a platform that adds value and is simply not the cheapest or you do yourself and our industry a diservice.

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John ryde via mobile

Nov 26, 2012 at 10:57

Question for all the advisers on here complaining that platforms charge in bps: do you charge your clients a £ amount for initial and ongoing advice? My bet is 80% of you charge a %. Wind your necks in!!!!

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Simon P via mobile

Nov 26, 2012 at 10:58

Well said John ryde.

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Truly Independent

Nov 26, 2012 at 11:23

Agree with most of the comments above, Clients have a far better understanding of the true cost of anything in Pounds not Bps! Agree with John too, if the Platform was to charge in pounds instead of bps then so should the IFA with the cost of our advice, Initial and Ongoing. In my opinion Bps should only be added as an extra to reward performance, eg. a %bps DFM charge if the Investment decisions are outsourced. Our HNW clients always want to see what everything costs in pounds and pence, that is how they became HNW!

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Paul Riddell

Nov 26, 2012 at 11:26

Aim is to give customers a more competitive charge and a much simpler pricing structure.

In many ways Elevate gives advisers and clients the best of both worlds: a market-leading wrap platform at a highly competitive price.

Elevate is constantly looking at ways of improving value for money - its fund supermarket pricing will be amongst the keenest in the market and its joint offer with Architas provides low cost multi-manager investment solutions.

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David H via mobile

Nov 26, 2012 at 11:35

Can anyone confirm if AXA is still operating successfully in Australia where wraps and platforms have thrived for some time now?

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Kate Brookes

Nov 26, 2012 at 11:41

@John Ryde @Simon P

If you were to ask most ordinary people in the street what a percentage was, they could tell you. If you ask them for the definition of a bip, they'd probably look at you like you had just landed from another planet. This argument doesn't stand up.

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alan mcintosh

Nov 26, 2012 at 11:44

Let the price war commence! This was on the cards as soon as the commision ban was announced. Can only be good news for the consumer, and the well placed advisory business.

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Simon P via mobile

Nov 26, 2012 at 11:51

Kate - you miss the point by a country mile. % and bps is the same way of charging. The argument is % (and bps) vs £ and john was raising the point that people on here are criticising that platforms charge a % rather than £ amount when most of them probably charge their clients the same way. I doubt any adviser uses the term bps with a client. Read the comments properly before wading into a discussion.

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John Ryder via mobile

Nov 26, 2012 at 11:53

Kate - you clearly don't understand the argument.

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Truly Independent

Nov 26, 2012 at 11:57

If we charged everything in % terms there would have to be cross subsidy - Client A has £50,000 Assets, Client B has £250,000 Assets, both invest into identical investments and tax wrappers. It would not cost our firm anymore to service Client A or Client B. Why should Client B pay towards the cost of advice for Client A? On 1% pa Client A doesn't pay enough for us to service them, and Client B pays more than it would cost us to service this client.

The same is also true of the platform - On 35bps or 0.35%, Client A would pay £175 pa and Client B would pay £875. What does it actually cost for a platform to administer/facilitate the above investments, should it not be the same? This debate will continue....

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ANDY WOOLLON

Nov 26, 2012 at 12:24

Whilst many may see cutting charges as good news for the consumer, in the longer term I believe it will affect the overall service that both consumers and advisers receive. You only have to look at what banks did some years ago - closing branches, overseas call centres, online technology etc - only to go full circle as consumers walked, wanting F2F contact. Plenty of other examples since, including Comet - whilst we have all bought the cheapest TV etc online, I bet most of us still went to the store to see what it was we were buying and have the opportunity to ask questions.

With the continual cutting of charges comes cost-cutting, and normally in the form of (in the main) knowledgeable, dedicated and helpful staff, so who then is left to discuss the latest legislative/regulatory changes, sales opportunities, CPD training etc etc. Just because Platforms make the administration quicker/slicker and advisers are at least QCAL4 qualified, doesn't suddenly mean that advisers don't need this support anymore.

As the FSA Platform paper highlighted, cost should not be the key/only focus and I think that overall value-for-money and support, play a big part in this Otherwise if these services/support need to be bought in elsewhere, this is an extra cost that will probably be passed on to the consumer in the form of higher adviser charges, which will then be seen/criticised as being too high (by the consumers/FSA etc), who will then go to another adviser with lower adviser charges, but higher Platform charges......and so on.

If the industry/FSA isn't careful, we're going to end up........(I'll let you fill in your own endings).

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Sam Matthews

Nov 26, 2012 at 12:44

Dont agree that lower prices mean a drop in service. This is all about economies of scale and winning the long term war. if you halve your prices but double your no of clients then its still the same level of income. If you more than double your number of clients then you are on to a winner. Simple business really. The important bit is what happens in the interim whilst those customer numbers are growing and having the backing of a company like AXA presumably helps

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Yaya Toure's wallet

Nov 26, 2012 at 12:57

All the above comments are influenced by personal experience and bias. Some users will be using and happy to continue using AXA Wealth/Elevate and others will use alternative wrap providers.

Personally I use Elevate and Transact and Ascentric. However at only 0.25% from £60,000 per household, Ascentric remain cheaper than all these new offers that Elevate and Transact and Aviva and the old supermarkets are launching. That said take care with any ancillary charges for dealing, model portfolio's or pensions too and moreover regular savings compared to lump sum investing. Hence no one wrap is suitable for all clients.

The argument about a flat fee rather than a percentage is absolutely correct as cost does not rise in line with portfolio value. However, again only IFA's who also levy their own charges as pounds and not a percentage can argue that wrap's should be doing.

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Philip Melville

Nov 26, 2012 at 13:09

@ Kate,

As you are the only one to mention the client in your very correct comment about understanding and perception then we have to assume that nobody else thinks that clients being given trade jargon which they probably dont understand is important.

I suspect that you will have the brighter future Kate so dont worry.

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Green Eyed Monster

Nov 26, 2012 at 13:13

@john Ryde and Truly Independent

I agree platforms should only charge in £ for their admin.

IFAs on the other hand carry all the responsibility and liability for the advice given for the client's lifetime, and that responsibility varies according to the value of the portfolio. So paying the IFA in % terms is very appropriate.

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John Ryde via mobile

Nov 26, 2012 at 13:26

@ GEM - rubbish. If the risk is higher with a larger value portfolio then charge a higher £ amount to reflect that. Should a client with £950k pay more than one with £900k? It may be that the lower value client has more complicated requirements and so should be charged more. There is not an absolute correlation between portfolio size and cost to manage the portfolio. Each client should be charged for the service you provide.

Phillip - whilst you are right that Kate makes a very valid point about what the client understands that wasn't the point of the discussion - it was about £ vs. %. How things are described to clients is a separate issue

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Philip Melville

Nov 26, 2012 at 13:35

I actually think that the vocabulary used is one of the major problems facing our industry and these comments simply underline that for me.

It is easy to forget that you are talking about peoples money and not massaging your own ego and also that good habits are better formed with practice..

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Andy parsons via mobile

Nov 26, 2012 at 13:48

Phillip - your comment made me laugh. Most advisers I know are intelligent enough to be able to use industry terminology when in the presence of people in the industry and simple terminology when working with clients. The fact you need to 'practice this' perhaps reflects the level of intelligence you have. When speaking to adults I don't converse the same way as I do with my 2 year old 'so that my habits are better formed with practice'. Although come to think of it he did look at me funnily when I told he could have pudding if he ate another 100 bps of his dinner.

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wrap-it-up

Nov 26, 2012 at 13:54

@ Aristotle

totally agree with you. It seems to me that AXA with lowest FUM compared to its competitors trying their hardest for survival!!!

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Philip Melville

Nov 26, 2012 at 13:57

Perhaps you are right as I often feel a bit lacking when confronted by people who think that they are intelligent.

Probably why we seem to need lots of compliance in this industry to cover our bums when clients don't understand what we do.

Still it takes all sorts.

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Jimmy via mobile

Nov 26, 2012 at 14:01

What are elevate doing with existing clients and tcf?

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Green Eyed Monster

Nov 26, 2012 at 14:06

@ John Ryde

" If the risk is higher with a larger value portfolio then charge a higher £ amount to reflect that"

Precisely my point! and the best way of doing that is by %, thus keeping the fee always in line in line with the value/liability.

" There is not an absolute correlation between portfolio size and cost to manage the portfolio"

I never claimed there was! It is not the cost that is the issue its the potential liability! For the record I believe an efficient IFA firm should be able to run all their portfolios at roughly the same COST,but we charge according to our potential liability.

It may seem rubbish to you but we've been doing it successfully for over 25 years, and our clients are happy!

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Dave

Nov 26, 2012 at 14:16

If a client is happy to pay a % charge of their portfolio, then I really don't see why this is a problem.

If the fund manager charges a %, the wrapper provider charges a % and the IFA charges a %, then it is fairly straightforward to say, your total % annual charge is X%. I have never met a client with money to invest who didn't understand a %. I also think that if I was speaking to a client and everybody was charging a fixed £ fee, I would end up saying £X for the fund manager, £Y for the wrap provider and £Z for the IFA. This works out at £XYZ in total which equates to X%......

Surely the key is to make sure that the client is happy that the service that they are paying for is good value for money. It doesn't really matter how much this or how it is calculated. I also don't think that what one client pays has got anything to do with what another client gets paid (although we charge a very explicit % fee, if the client doesn't want to pay it they don't have to take us on....)

Finally, I think that Marx said something along the lines of "competition leads to monopoly" as a criticism of capitalism. If there is a price war and Wrap providers (independent or provider owned) reduce charges in order to increase volume, there will be winners and losers and we will end up with very few providers who are then able to increase prices again at a later date. Price wars do nobody any good in the long run.

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Kate Brookes

Nov 26, 2012 at 14:27

@ Philip Melville

Thankyou Philip, I appreciate that.

It does seem to me that it is the client who often gets forgotten in some of these discussions. This was my point, not some great financial theory.

I know my clients would rather know exactly what they are being charged in £'s, rather than a certain number of 100ths of 1% depending on how much they have invested. If advisers charge a percentage, at least they charge in whole numbers that are easy to understand and conceptualise.

Why wouldn't an adviser use the term bips with a client ? Because it's too difficult for most people to get their head around, and therefore how can it be a transparent way to levy charges?

It's all still too much smoke and mirrors, I'm afraid.

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Andy Jones via mobile

Nov 26, 2012 at 14:44

This bps argument is just stupid. A bip is a basis point - 100th of 1% and is just used as an industry term for small percentages as 10 bps is easier to say than 0.1 %. This conspiracy theory that is it used to make things opaque is just laughable. Providers and platforms don't use the term bips with end clients.

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Martinifa

Nov 26, 2012 at 14:46

We are doomed, reading the above there is little hope for our industry.

There are cases for both charging structures and why anyone should think their way or system is better than anyone elses leaves me cold.There will be a price war if we let it happen, no one benefits if there are no advisers left other than the Government, who will then be in total control.

There are comments above I cannot beleive people would put in to the pubic domain.

You will fight with each other, but very few place their heads up when asked to deal with or challenge the regulator.

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Xiang Xhi

Nov 26, 2012 at 15:01

All they have to do now is:-

a) reduce costs further to a level where they are competitive with the big hitters in the industry, and

b) manage to become profitable at the same time.

Simples!!!

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EVHE

Nov 26, 2012 at 15:13

I'm mystified by the comments aligned to this article.

If AXA can continue to provide platform functionality, development, and quality support at this price then this is great news for the consumer.

A very large organisation seem to be flexing their muscle. It will be interesting to see how the rest of the market respond and what the pitch will be if they offer less support, choice and functionality for a higher price.

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Truly Independent

Nov 26, 2012 at 15:36

@EVHE - Its also interesting to note that on their previous higher charging structure the platform was still making a significant loss. AXA Portfolio Services which house the platform made a total loss of £60m for 2010 & 2011 and will not be in profit until 2014, as reported here in April 2012.

They would only have dropped their price if they felt they were losing market share too quickly. How much longer can this be bankrolled!!

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Jamie F

Nov 26, 2012 at 15:49

price is what you pay. value is what you get..

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David Ferguson

Nov 26, 2012 at 16:01

@Truly Independent - spot on. Demonstrable sustainability is probably the single most important due diligence point. Much more transparency here would be instructive.

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Truly Independent

Nov 26, 2012 at 16:57

There are and will be very few 'truly' sustainable profitable wrap platforms out there, and this is why many of the larger provider based platforms are being forced to cut costs heavily, with most of this unfortunately being borne by the very staff who have promoted them. Will service from these platforms now deteriorate is the big question. We now do our platform due diligence more regularly as this market place is now fast moving, and we are increasingly moving away from provider based platforms.

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GDM

Nov 26, 2012 at 17:48

Adam is correct, Alliance Trust Savings offers a platform with a flat fee charge rather than bps. Offering a flat fee isn't about a race to the bottom, indeed the ATS flat fee may be a little expensive for smaller pots but in a post RDR world where each of the component parts of the value chain are exposed what it does give advisers is certainty of cost. Bps or flat fee isn't a question of service - all platforms will claim to offer a high level of service - the fundamental question is this - do you believe that it costs twice as much for a platform to administer a £200k client than it does for a £100k client? If the answer is yes then bash on with bps. If you believe that a modern, simple and efficient platform can administer them both at the same cost then welcome to a brave new world.

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Philip Melville

Nov 26, 2012 at 18:16

Is this the Commercial Break ? Shall I put the kettle on ?

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Ross Glanfield FPFS via mobile

Nov 26, 2012 at 19:04

It is obvious from the responses to my comments that the debate on platform charging is set to continue until RDR2 eliminates adviser remuneration from investments. Only then will true professionalism emerge as advisers stand up against platform profiteering from our clients. I like to think that one of the reasons LIFT-Financial was voted Chartered Financial Planning Firm of 2012 is our bravery at launching a true institutionally-priced pound-cost platform and our commitment to value through a fixed-fee proposition. Hopefully the majority of financial planners will follow this lead and turn the bip-based tide

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New Model Bob via mobile

Nov 27, 2012 at 08:07

@ David H - AXA Australia were bought out by AMP and so no longer operate in Aus. They were never a major player, the industry is very much controlled by the big four banks. This was generally achieved by distribution control, essentially buying out HNW dealer groups...Sound familiar to what AXA did a few years back with some of the UKs Top Independents?

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New Model Bob via mobile

Nov 27, 2012 at 08:24

Flat fees are good in principle, however as mentioned earlier liability is obviously a factor. Those that think platforms potential liability doesn't increase with size but IFAs does is just rediculous. Atleast platforms generally have a tiered fee scale, how many IFAs actually do...not very many I guarantee.

Interesting to see only headline figures published, what level do they actually reduce to?

In the end tiered structures will remain however will essentially be capped at at a certain level, around 1-2 million

IMHO.

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