Platform pricing evolution: Are client’s going to be better off?
In retail financial services, it’s hard to remember the world before RDR. It’s harder still not to be staggered when you think that RDR is nearly eight years old and will be 10 by the time the Financial Conduct Authority’s sunset clause on legacy rebates comes in to effect in April 2016.
The question, of course, is whether or not there has been a tangible benefit to investors? Narrowing on a purely financial outlook, investors ultimately end up absorbing the cost of changes to the regulatory regime, even if it is only a few basis points defused across the total customer base. It’s difficult to conceive the monumental change programme that has had to be undertaken by advisers, platforms and fund groups in readiness for RDR. That change programme comes at a cost and can either be absorbed by the firms, or be passed onto the end investor to varying degrees.
The industry structure emerging from RDR is one that has imposed heightened economic forces. That competitive pressure has the potential to buck the antecedent trend of financial services regulation and end up making more affordable investing an outcome of RDR.
Firstly, the ‘super clean’ debate continues to evolve as platforms claim column inches to promote their average annual management charges. It seems that fund groups are prepared to offer better value to investors. A move that will hopefully end the days of a standard 1.5% annual charge for an actively managed fund, as well we create a revised industry structure where real price competition among fund managers sees a deflationary effect on fund TERs.
Secondly, the move from the margin platforms used to make from fund rebates, traditionally around 0.25%, or higher for the larger platforms has been replaced by a transparent, basis point charge. You can see the benefit for the client here, particularly as AJ Bell and our charges start at 0.20% and 0.18% respectively, saving investors a minimum of 0.05-0.07%. Some platforms have been unable to set their stall out as competitively as they look to replace higher rebate margins. Factor in the move to tier charges down as wealth increases and affluent clients certainly look set to benefit.
So, eight years on, RDR looks to be achieving more than just the separation of products and charges. In lifting the veil on charges, it has placed all the participants under increased price competition and pressure. We have only seen the beginning of a deflation in price for platform services and investing. The good news is that it will continue to deliver better value for the end investor in the run up to the Sunset Clause in 2016.