There’s no such thing as a free lunch
Discussions of platform pricing and fees have taken over the financial services industry following BT Panorama’s announcement of significant fee cuts, and while some experts say it’s nothing more than a cheap headline, others say it’s a good sell.
In announcing the slashed fees, BT CEO, Brad Cooper, said the changes represented a move away from pricing that had “historically been differentiated between different advice licensees”, and the new pricing would allow advisers and clients to access “the same, simple, low capped administration fees”.
But is it too good to be true? Arnie Selvarajah, CEO of Bell Direct, told Money Management and Super Review’s Future of Wealth Management conference that his take on the BT Panorama announcement was that it was little more than a “cynical attempt” to get a headline.
“They’ve disaggregated prices to the point that, effectively it’s still more expensive than a Netwealth or a OneVue or a Praemium or a HUB24, but they’ve achieved a lot of PR in the process,” he said.
Managing director of Fiducian, Indy Singh agreed that when transaction and switching fees were added together, the platform remained more expensive than it’s peers.
When asked if platform prices would ever hit zero, the panel put it plainly: “There’s no such thing as a free lunch.”
“There’s a tremendous amount of work involved in investing in the technology and putting the analytics together and it’s not going to come for free,” added country head of Avaloq, Anantha Ayer. “If it is free, they want you and your data, and that’s all it’s about.”
But while BT may have missed the mark, Selvarajah was of the opinion that prices needed to be simplified to attract more clients.
“I think there’s an opportunity for us to get a substantially higher number of clients to engage in our industry if we make it simple for them,” he said.
Avaloq’s country head said perhaps blanket simplicity wasn’t the key, but for those who utilised more value-added services and were more financially educated and aware, transparency would suffice.
He said there would be different pricing for different segments of the market, and for those who had different needs and sat “at the lower end of the segment”, complete breakdowns of prices and inclusions in terms of transactions and cash rates would probably be necessary.
In terms of how advisers could make pricing simple, the panellists could all agree that transparency would form the foundations, and Selvarajah said while RG97 went a little way towards it, it didn’t quite tick all the boxes as each adviser interpreted the regulations differently.
“And everyone comes up with a different result,” he said. “If we don’t do it [make prices transparent], the regulator will, so in my mind, it’s better for us to be proactive on this.”
Ayer compared how fees were handled internationally and pointed out that countries like Europe had more regulatory-driven transparency, which obligated advisers to prove why they charged certain fees and what services they provided.
He suggested Australia would head in the same direction, and platforms would need to shape up and specifically mention what prices included in terms of transaction and switching fees.
Singh agreed more transparency was needed, but divided panellists and conference participants when he put forward that the industry remained a business and advisers should disclose what they want and leave it to the client to make their own decisions.
“Maybe it needs to be in bigger print, but if you can sell it better ... that’s what makes it a market,” he said. “It’s an open market, and I don’t think there’s an easy solution.”
Singh reiterated that advisers placed too much pressure on themselves to bring down costs, but clients only cared for value.
“I think when clients walk in to see a planner, they rarely look for the fine print or the fees, they look for service and value, and when you can give them service and value the fees become incidental,” he said.
Ayer and Selvarajah disagreed, and instead suggested that was the reason advisers should strive to make fees more transparent to gain more clients.
“We know there’s around 6 million Australians who would get advice if they could participate or engage in a way that they were comfortable with,” he said.
The panel confirmed that fees were a scale game, which meant taking marginal costs to zero was the goal, and Ayer said if prices were free, platforms would need to receive something in return but putting value-added services on top.
“Or the other one would be, ‘I want your data’,” warned Ayer.
The panel identified a substantial asymmetry between the industry and its clients, and urged advisers to simplify prices and “put trust back into the industry” through transparency with fees.
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