The thing I'm known most for at the lang cat, other than bad jokes, are our pricing tables. Presented in glorious technicolour (and absolutely not just a rudimentary feature of Microsoft Excel. Oh no.) these tables allow you to have a gander at platform pricing at a market level and get a quick sense of who is competitive at various portfolio levels. We'll get right in about that shortly.
After a couple of fallow years, you could have been excused for thinking that pricing was starting to really settle. And then a swathe of changes started to filter through, almost as if we'd angered the arithmetic Gods.
What's new pussycat?
But first, 2017 was a funny old year in platform pricing. After a couple of fallow years, you could have been excused for thinking that pricing was starting to really settle. And then a swathe of changes started to filter through, almost as if we'd angered the arithmetic Gods. Here's a lowdown of some of the highlights of last year.
- Transact continues to shave bits and bobs off its core charges following another year of profitability. Back in April, its core pricing tier of 0.31% was reduced to 0.30%. It's doing similar again this coming April, reducing again down to 0.29%. If this trend continues, Transact will be paying you to use it come 2046. #maths. Joking aside, this is one of those instances where the philosophy is more important than a single basis point. Transact has been doing this for an age now and it's a great position to be in.
- Ploughing a similar furrow, Nucleus also made a shaving to its platform structure, reducing the charge applying to portfolios over £500k. The average holding on Nucleus is some way below this (as is that for most of the rest of the market, mind you) so we see this as more of a strategic push for chunkier pot values.
- Squeezing into the update by the width of a gnat's unmentionables at ten to Hogmanay was Zurich Intermediary Platform, which made a couple of cuts to portfolios of more than £250k, a move intended to attract larger pots, pension in particular.
- Moving on to the two most significant changes. First up, James Hay completely overhauled its Modular iPlan structure with some pricing hokey cokey. Some charges went up a bit, some down a bit and some stayed much of a muchness. Overall, most customers are worse off by around 6 or 7 basis points, a move deemed necessary by James Hay in order to invest further in the business. A delicate message to convey to the market, but we were heartened by the response (or lack thereof).
- The most pleasing change of all to a nerd like me was the move by Ascentric to a simple, fully inclusive structure that includes all dealing irrespective of investment type. It's a move that echoes one of the original intentions of the brave new world of platforms. A neutral-priced environment, regardless of tax wrapper and investment type. We like.
- Perhaps the biggest news of all came in the guise of the two new entrants to the platform market. Step forward Embark and Hubwise…say hello to your mothers, tell us a bit about yourselves and where you come from. Sorry. Yes. The most interesting thing (from a price perspective) about these respective launches was the sheer competitiveness of them. Which leads us nicely on to…
Enough with the chatter, show me the pretty colours
For our (in)famous heatmaps, we use a sample wrapper split of 50% pension, 25% ISA and 25% GIA. Clearly this can and does vary significantly from client to client but, based on our analysis of the market, this is a decent representative split at aggregate level.
We're also assuming investment in a model portfolio that is made up of ten equal fund holdings (around 94% of platform assets are in collectives and cash) that rebalances quarterly to correct a 2% drift. Your driftage may vary.
Mashing that all together gives us ongoing annual costs that look like this.
Ooh, that looks lovely, but what does it all mean?
If you're an adviser conducting a platform selection process, then be open and honest about your flow levels and ask for a deal. In the last year or so we helped manage selection exercises for well over £500m AUA and we know that there are cuts out there if you ask for them.
- Around 35 basis points or thereabouts continues to be the watermark for ongoing platform custody at the core market level. And by that we mean portfolios around the £100k to £200k mark (we place the mode pot size in the market to be a shade under £150k).
- Platforms tend to be competitive at different segments. There are a handful of platforms who dominate at the higher end, with the price caps from Aegon Retirement Choices, Hubwise (and AJ Bell Investcentre to a lesser extent) and the ultra-low custody charge from James Hay and Embark joining fixed-fee nonconformists Alliance Trust Savings in the green zone.
- Embark and Hubwise make a mockery ofthe notion of market averages by killing it pretty much across the board, clearly feeling at their respective HQs that (1) they will have to be competitive as a new entrant and (2) they feel they have the propositions to deliver it at a profit. We wish them well.
- Despite the rumours you might have heard, size really doesn't matter. Stop it. You'll hear chat from some quarters that the only way platforms will be able to deliver profit and lower charges for the customer is by achieving scale. That's fine and dandy in an economic textbook but it's simply not true (yet) of the sector. As we've seen, some of the smaller platforms dominate on price. Similarly, some of the more modestly sized in terms of flows are also the most profitable.
- One important point to note is that these are shop window prices. If you're an adviser conducting a platform selection process, then be open and honest about your flow levels and ask for a deal. In the last year or so we helped manage selection exercises for well over £500m AUA and we know that there are cuts out there if you ask for them.
The most obvious impending change is whatever Aegon decides to do with the new master-blaster platform post Cofunds migration. For what it's worth, my money is on a squidging of the two shapes, with the new price a lot closer to Cofunds levels whilst retaining the Dutch cap.
So, there we have it, a very quick rattle through recent pricing developments. By the time you read this, there's a good chance something will have come along to change a couple of lines in the table. Such is life. The most obvious impending change is whatever Aegon decides to do with the new master-blaster platform post Cofunds migration. For what it's worth, my money is on a squidging of the two shapes, with the new price a lot closer to Cofunds levels whilst retaining the Dutch cap.
Feel free to laugh at me next quarter if I'm wrong.