Flat fees can provide certainty, reassurance and reflect the cost of a service provided. Opinions are divided if they are right for financial planners. But do they also offer advantages elsewhere?
More than four years after the Retail Distribution Review took effect, debate continues over what to charge and how for financial advice.
The issue of ongoing charges based on a percentage of the investment featured prominently in the trade press in January, amid questions over fairness and transparency.
Almost half of advice firms charge on an ad valorem basis, where the fee is a percentage of the investment, according to recent data from the FCA.
However, the regulator’s analysis of its Retail Mediation Activities Return also found that more than a fifth of firms now charge fixed (flat) fees, a similar proportion charge by the hour and around 10% offer a combination of the two.
Whatever way planners and advisers choose to charge for their services, the chances are that many have clients paying percentage-based fees for platforms.
Whilst you can make an argument that your actions influence client wealth, meaning percentage fees potentially align interests, does that hold true for platforms? It certainly doesn’t cost a platform 10 times as much to provide the same services to a client just because their portfolio is worth £500,000 rather than £50,000.
All other things being equal, clients with substantial invested funds may well gain from their investments being held on platforms that charge flat rather than ad valorem fees. Their charges won’t increase each time they add to their portfolio, or when its value grows.
From the platform perspective, flat fees reflect the costs of the services provided and don’t expose the provider to changes in market value, making for a more stable commercial model. From the client perspective, costs are clear and compounding means fee savings can make a big difference to the value of their portfolio over time.
Find out about Alliance Trust Savings’ flat fee platform
here.
Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested. Past performance is not necessarily a guide to future performance.
We’re an investment platform with a difference. We charge flat fees based on your client’s specific engagement with our platform; nothing more, nothing less. That can equal a very competitively priced proposition, yes, but more importantly to us, it’s fair.
Since re-platforming in early 2016 we also now work on the same technology as many of the platforms you already use. This means we can pass on the potential benefits of a flat fee to your clients without you having to make any compromises to the functionality, features and service that you value and need - including one of the industry’s widest ranges of Investment Trusts and ETFs.
Most platforms try to satisfy all investors, we don’t. We’re clear that we can be incredibly cost-effective for the more affluent investors. Flat fees provide us with a scalable model that supports growth whilst avoiding a long tail of legacy clients with administrative costs that simply wouldn’t be covered by - often very low - percentage based charges.
We’re Alliance Trust Savings, the platform for smart flat fee investing. We’re not like all the others. We’d love to talk more.
alliancetrustsavings.co.uk/adviser