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I have been thinking about something for ages, and I reckon it is time to consider turning an accepted norm on its head and do things differently….
Before outlining exactly WHAT I have been thinking about, let me draw up some scenarios for you to ponder and see how they would make you feel:
Solicitor completes the purchase of your new home, and hands you a separate bill to pay for his secretary’s time.
Restaurant provides lovely meal but the bill includes separate invoices from the butcher and grocer for the ingredients that you have to settle yourself.
Airline delivers you to your destination, and then asks you to settle the fuel bill directly with the provider.
There would be no real hardship in these scenarios, as the net cost is the same, but you’d be a bit peeved if it happened because you have signed up to a service with one company (or so you thought).
The point I am (rather laboriously) trying to make is that it would be in advisers best interests to pay the platform fee instead of the client.
Ultimately, who benefits from the platform?
That’s obvious….the adviser. The client doesn’t really benefit other than in the ability to have a joined up service from the adviser at a realistic cost.
But that is the SERVICE they are signing up to, not the platform.
When platforms first came about, the idea of housing everything together and managing it all from a single account was really exciting – a chance to change the public’s perception of how to plan for their future and make them realise we are not pension salesmen.
Let’s assume I haven’t thought about this fully and maybe we could use this as an opportunity to open debate.
I’ll give you a few advantages and disadvantages of the adviser paying the platform fee and maybe you could add your own to the comments and let’s see where the net position gets us in a few months:
ADVANTAGES:
No-one is worse off
The client currently pays anywhere between 0.25% and 0.6% for the platform (quite often not really realising it). When the adviser pays the charge, they increase their fees accordingly so the client has the same net position.
The adviser controls the terms of the platform and influences positive developments
If the client pays the fee, they don’t realise their collective negotiating strength they have with the platform and often may not know HOW to influence developments. Advisers, on the other hand know how a platform should develop and by being the fee payer can influence the direction taken with more power to their elbow.
There is also the client’s perception. At the moment, the ultimate sanction the adviser has with a platform for poor service is taking their clients elsewhere. In reality, that is not going to happen though, particularly as you have to go back to the client and say ‘you know that funky platform I recommended, well – we need to change to this one now’.
The client is REALLY buying the service not a product
The RDR was all about the move to proving professionalism and charging directly for the service provided. If the client is paying the platform fee, it is just another product being sold. If, on the other hand the adviser is paying it, it is a tool they are using to deliver the service.
The cost of the platform is a deductible expense
Bit tenuous, maybe, but nonetheless this could help larger businesses
Create true partnerships
If the adviser is paying the fee to the platform, they can ensure they work with a platform that truly demonstrates an appropriate model for the service proposition they have developed for the appropriate client segment. Also, it would remove the fear some advisers still have that the platform will, one day, run off with all of their clients as THEY are the client.
Consolidate software use
Could paying to have the platform also mean you could do away with the need for a separate back office system (the only thing they did in the past that the platform couldn’t was reconcile commissions anyway, wasn’t it?)
DISADVANTAGES:
Comparing like with like
If a client is comparing the adviser fees between those that pay the platform and those that don’t, they will need to understand this distinction
Practicalities
If we are going to do this, we really ALL need to do it or it’s not really going to work. Also, can it even be done from a regulatory perspective? Would it be considered an inappropriate incentive by the FSA/FCA?
The current risk based charges would need to change
Instead of basis points charges we would need know software licence charges (The only reason we accept the basis points charges is because we are not paying the fee – do you pay your back office software on basis points?)