DON’T BE SWAYED BY HEADLINE RATES WHEN IT COMES TO PLATFORM CHARGING, WARNS AVALON’S HARRY KERR
12th July 2010

FundsNetwork’s announcement it is to introduce a new pricing option offering free purchasing and switching for higher value clients illustrates the deceptively uneven playing field that exists within the platform market, warns Harry Kerr of Avalon Investments.

“While Fidelity is saying it will drop the 25bps charge for those with accounts over £50,000, it will still levy a £45 annual charge, so clients will continue to pay for switching albeit at a lower rate,” Kerr points out.

The managing director of the independent wrap provider flags the practice among providers of marketing on a low annual charge, which he points out, can hide a range of additional costs an adviser may assume are included but which are not and will add considerably to the amount they pay.

“Advisers should not be swayed by headlines rates but should dig down into the details before committing to a platform,” Kerr adds.

“When we set up Avalon we adopted an open and transparent charging structure with no hidden costs. Our clients pay one annual administration charge - 0.5% plus VAT - and that includes everything. There are no extra fees for bells and whistles and certainly not for essential items like switching and rebalancing. That way our clients know exactly where they stand and what they will pay and so they can tell their clients exactly where they stand and what they will pay.

“Our practice delivers no unexpected bills and we believe it is fair for our clients and a responsible way of doing business.”

That openness is lacking in some parts of the market, he adds. “If you look around the rest of the market you will find that while some platforms set their charges at an attractive rate, that provides for a lower level of service and the platform will have in place fixed charges for operations such as valuations, switching funds, setting up ISAs and so forth. These can be flat fees or a percentage of the value of the transaction.”

Headlines rates are likely to be more pronounced come January 2011 when VAT increases to 20%.

Given current economic and stock market uncertainty, top end IFAs are likely to want to rebalance client portfolios and may require valuations on a more regular basis. “To go for headline rates could see them hit with hidden costs which can quickly mount up and which they will have to pass on to their clients making their own business less competitive.

“In this scenario headline rates become a false economy,” Kerr says.

In addition to its policy of transparent charging with no hidden costs Avalon provides for fully flexible commission options, as agreed between the adviser and the client and offers a full wrap service, enabling investment across the entire range of eligible funds and multiple asset classes.

Ends


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