Average platform market pricing is set to continue by just over a basis point per year for the next five years as the sector is not in the right place to drive forward meaningful disruption in terms of price, according to a new report from The Lang Cat.
The platform consultancy said that platforms cannot make meaningful changes in pricing whilst many mainstream platforms are still resembling the older operating models of products/insurers where many tools and services outside of core custody and investment administration come with extra costs. The Lang Cat’s adviser research showed that such services can be highly valued, but this does not create the right environment for imminent disruption.
The consultancy also predicted that the platform market will continue to fracture over the next five years.
The report noted that platform sector started to fracture about a year or so ago between core providers, the vertical integrators, white-label offerings and ‘focused’ solutions.
According to The Lang Cat, white-label solutions in this model will likely have the keenest pricing structures, which is natural, reflecting the stripped-back nature (from a support perspective) of the proposition. However, the consultancy also noted that it is also the segment that is lowest in transactional volume and exists mostly in the abstract of the minds of adviser firms, two dynamics that the consultancy said do not add up to year on year pricing shifts.
The report also predicted that we will not see a successful fixed-fee platform pricing model in the next five years.
With the loss of the Alliance Trust Savings fixed-fee model, the only truly different pricing model disappeared from the intermediated platform sector and it’s not likely to be replaced, even if it does get talked about from boardroom to boardroom, according to The Lang Cat. For the time being anyway, D2C is where it’s at for fixed-fee structures, with interactive investor in particular going great guns.
The Lang Cat also predicted that any meaningful price disruption that happens will happen off-platform.
The report said that if meaningful disruption to Total Cost of Ownership (TCO) is going to come, it will be from elsewhere. Unlimited basis point charging for outsourced investment management is ripe for disruption, particularly Discretionary Fund Management (DFM) Model Portfolio Service (MPS) arrangements. Asset management remains in the regulator’s glare as we’re yet to process the full impact of the first wave of value for money declarations. The report noted this is another example of unlimited basis point charging which feels ripe for disruption.