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Can wealth managers cash in on the platform price war?

Can wealth managers cash in on the platform price war?

The new unbundled charging structures from Hargreaves Lansdown, Fidelity and Barclays Stockbrokers have caught the attention of most in the advisory and wealth management sectors.

From March, the UK’s largest fund supermarkets and direct-to-consumer platforms will switch to a clean platform fee. It is a move some believe could present a golden opportunity for discretionary investment managers to attract business from wealthy execution-only clients looking to have their money managed by a professional.

With downward fee pressure on discretionary fees over the past few years – particularly on more standardised offerings like managed portfolio services where competition is rife – the price differential between discretionary and DIY appears to be narrowing.

Leading the way

Hargreaves led the way with its new pricing structure, ahead of new platform rules coming in in April. The UK’s largest consumer platform will charge 0.45% for portfolios under £250,000, 0.25% from this level up to £1 million, 0.1% up to £2 million, with no charge levied thereafter.

However, a look at the finer print reveals 73 separate lines of different charges, including fees for paper valuations and higher exit charges from June.

The company also backed down from introducing a new additional charge of 0.45% for customers holding investment trusts on its platform after an outcry led by the Association of Investment Companies (AIC) and private investors.

The news comes as Fidelity reveals lower headline charges for its platform.

Investors with up to £250,000 will pay a 0.35% service fee, falling to 0.2% between £250,000 and £1 million, with no service fees thereafter. Fidelity said there would be no initial, switching or exit fees and no extra fees for product wrappers or for having a preference for using the phone or receiving paper valuations.

Barclays Stockbrokers also joined the fray this week, setting its fund administration fee at 0.35% per annum, with no further charge on fund holdings over £500,000.

The unveiling of these structures has been welcomed by Harry Morgan of Thomas Miller Investment, who says the headline 1% management fee that dominates private client investment management now looks less expensive.

‘Suddenly with the RDR people are having to be open with their pricing. Hargreaves Lansdown has come out with its pricing and people are thinking, “Crikey this is costing 45 basis points”,’ Morgan said. ‘If private client wealth managers are charging 1%, the quantum of fee difference is not that great.’

While he suspects that execution-only clients do not necessarily view the service they received as free, he says they are likely to realise that it costs more than they had anticipated, providing a catalyst for some to look to discretionary management as another option.

‘The major criticism that people have of private client services, which is “why pay 1% if I can do it myself?” no longer applies. I welcome this transparency,’ he said.

Change creates opportunities

Jonathan Fry, private wealth director at the eponymous wealth boutique, also believes the change creates opportunities for discretionary managers to pick up business.

‘It does create an opportunity because it dispels the very simple but too widely held myth that discretionary management is expensive and anything via the likes of execution-only platforms was low cost,’ he said.

‘It gives discretionary managers an opportunity to at least state their case on equal terms. Whether or not the investing public will be capable of grasping the facts quickly is another matter.

‘I think it will take a long time to change the mind-set that execution-only is always the cheapest option, but at least DFMs now have advantage of operating on a more level playing field – and one in which all charges are clearly disclosed and therefore direct comparisons can be made.’

Fry anticipates the success of discretionary managers in attracting disillusioned execution-only clients will come down to whether they are able to engage with them in a similar way to the platforms, particularly via marketing.

He notes this is an area that private client firms have traditionally been less active on, and says much will come down to clients’ perceptions of trust, control and cost.

Quilter Cheviot executive director Pamela Reid also hopes the managed portfolio service, which is available to direct clients on its internal platform for an all-in fee of 1%, could ultimately benefit from greater transparency in execution-only platforms.

‘We are very keen on greater clarity so it is easier for people to make decisions and choices about what service best suits them. There has been a remarkably small cost that is the difference to use discretionary management on a platform for a long while. This is now more obvious,’ Reid said.

Iqbal Gandham of low-cost discretionary manager Nutmeg also hopes that greater transparency will provide a fillip for private client investment firms.

‘From a discretionary manager’s point of view, prices are becoming similar and if you look at topline charges, underneath that there is a plethora of trading charges and exit fees. Service is where there is differebentiation.

‘If you are doing DIY and paying 1%, why not go to a discretionary manager where you are paying approximately the same fee? It is a question of “can you get a better level of service for a better fee?”’ he said.

Brewin Dolphin

In the version of this article that appeared in last week's Wealth Manager magazine, a reference to Brewin Dolphin's 'commission per transaction' was erroneously included in a table which was meant to refer only to Brewin Dolphin's 'fee-only' charges. Brewin Dolphin has asked us to make it clear that it does not charge commission, but rather a £20 charge per transaction in its fee-only model, and we are happy to do so.

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