Blog by Nick Britton - Platforms: help or hindrance?

Is your platform influencing your investment decisions?

I’m guessing most people’s answer to this will be a resounding ‘no’. The idea of a platform pushing an adviser down a particular investment route doesn’t sit comfortably with the notion of doing what’s right by the client.

Yet platform-related issues are often mentioned when we talk to advisers about the barriers to their using investment companies. We’re not alone either – these barriers apply to other non-fund investments such as ETFs.

The uncomfortable fact remains that more than five years after the Retail Distribution Review (RDR) mandated independent financial advisers to consider a range of products, 95% of assets on advised platforms still sit in open-ended funds or cash.

Not all of this is down to platform issues, of course. But platforms can be one obstacle that stands in the way of a truly unfettered investment selection, at least according to a report just released by the lang cat.

The report, commissioned by the AIC, concludes that there is an ‘inherent market bias’ against investment companies and ‘the cost of trading investment companies on some platforms can be prohibitive’.

As an example of the latter, the average cost of running a model portfolio of investment companies is 0.75% on advised platforms for £50,000 of client assets; but if that same model portfolio consisted of open-ended funds, the cost would be barely half of that at 0.38%.

It isn’t inevitable that investment companies should be more expensive for platforms to handle. You can see that by looking at direct-to-consumer platforms, many of which are very cost-effective for investment company holders. You can see it, too, by looking at the handful of adviser platforms which adopt an asset-neutral approach to pricing.

Why should platforms charge differently for handling different fund types? Some of it is down to technology, some dealing costs (it is probably no coincidence that the adviser platforms with in-house dealing desks are some of the most cost-effective for holding investment companies).

Of course, cost isn’t everything. Issues around ease of use also loomed large for the advisers interviewed by the lang cat. And there are still one or two adviser platforms that don’t offer investment companies at all.  

What’s worrying is that all of these issues are a distraction from the much more important issue of which investments might be best for a client. Investment companies have a bunch of advantages, from superior long-term performance to the ability to generate sustainable streams of income. Platforms should be making it easier for clients to enjoy these benefits, not harder.

Read the full report from the lang cat (PDF)