Future proofing prices is the new norm
Experts: David Ferguson, CEO
Facilitator: John Chapman, Orion Consultancy
State of play
There are current pressures on pricing in the market at all levels of the distribution chain.
Current client charging structures are typically:
- Financial planning 80bps
- Portfolio management 75bps
- Platform 30bps
Total client charge 185bps
Pressure on all aspects and the group thought that the direction of travel is towards:
- Financial planning 60bps
- Portfolio management 35bps
- Platform 20bps
Total client charge 115bps
This pressure on pricing raises a number of issues:
- A ‘race to the bottom” will not necessarily lead to better client outcomes. Can each part of the value chain continue to deliver a high quality client service if margins are continually being squeezed.
- How can prices continue their downward trend when regulatory pressure and pricing is increasing at all levels of the value chain? The regulator continues to increase the regulatory hurdle for all levels of the value chain and there is a cost to this regulatory hurdle. If the additional cost has to be absorbed by the provider of the service, it will not necessarily lead to the best client outcome.
- For financial planning firms, the continuing rise in regulatory costs is a recurring theme. FCA fees and the FCSC levy rise every year and these costs cannot continue to be absorbed by the firm, they will have to be passed on to clients at some point.
- The lack of Professional Indemnity Insurance in the market continues to be a challenge and the resultant increase in premiums is another constantly rising cost that will have to be absorbed.
- Part of the problem for the industry is that historic pricing has been based on a percentage of the clients asset value without any consideration of the costs to serve and the margin required by the firms for funding business growth.
- Pricing pressure will lead to focus at all levels on efficiency, productivity and how to best serve clients effectively while limiting the cost of human interaction – the greatest cost for any advisory firm. Businesses at all levels of the value chain will need to review systems, processes and client service proposition to assess how digital solutions can help to improve at each of these.
- Finally, how willing are product providers and platforms prepared to negotiate on pricing with individual IFA businesses. While larger firms may be able to negotiate segregated asset mandates with asset managers and lower platform prices, it is not the same for smaller IFA businesses.