Putting investment proposition costs to the test

4 min read 26 Nov 20

We know how important your investment proposition is to your business and running it, as cost effectively as possible for your clients, will be a key priority as part of this. So, we’re going to take a look at some of the ways you can help keep investment proposition costs down.

Let’s start with an obvious one – platform charges – but looking beyond headline custody charges to find out if and how additional costs may start to add up over time.

ETFs and platform trading charges

Exchange Traded Funds (ETFs) are typically cheaper than OEICs and, therefore, are often used to keep down portfolio costs, as well as total cost of ownership, for clients.

But, if a platform charges for ETF trading, then costs can start to build back up again, potentially diminishing the intended savings of using ETFs.

Let’s look at a £100k SIPP wrapper as an example, which consists of both funds and ETFs and where rebalances occur quarterly*. The M&G Wealth Platform's all-in pricing means that there are no trading charges for ETFs (or fund charges but most platforms don’t charge for this). So, the cost to the client stays at 0.30%, or in the case of this £100k portfolio, £300.  But, this cost could rise to as much as £432 for the same portfolio, if using another platform which charges for ETF trading.

Some third party products and wrappers will also charge for trading but if you choose to hold these on the M&G Wealth Platform then dealing charges will not apply.

*This scenario is based on a £ 100k portfolio, invested 100% into a SIPP wrapper. The 10 vehicle portfolio consists of six ETFs and four funds, and is rebalanced quarterly. A 5% portfolio drift is assumed where necessary. The custody and trading charges used to calculate the £432 cost are based on real competitor charges.

Potential savings from trading

Depending on its trading capabilities, a platform can generate cost savings for clients every time you buy and sell. The M&G Wealth Platform's in-house dealing desk, for example, trades in real time for the whole duration the markets are open, instead of just once at the end of the day. During the 12 months between March 2019 and March 2020 our dealing desk processed around 465,000 client orders and delivered £1.8m price improvements for them.

This translated to an average 14.9 basis points saving per trade over the period which, over the longer term, could offset a significant portion of platform charges.

Ad hoc administration and drawdown charges

You never know what might happen with any client but it’s likely that their needs will become more complex as they move into retirement. For example, you might have a client in decumulation who needs to crystallise part of her SIPP portfolio to buy a new car.

The M&G Wealth Platform doesn’t include any ad hoc charges whatsoever so, as the adviser, you could quickly organise a CHAPs payment for this client without worrying about additional costs adding up. But with other platforms, the combination of an additional drawdown charge, CHAPs fee and ad hoc administration costs could all kick in for clients in this type of position.

Keep costs down by keeping it in the family

Some but not all platforms will offer specific pricing and functionality for family groups, otherwise known as family linking. Using our family linking pricing as an example, let’s look at how this can benefit clients.

Say you have a client with a large trust on the M&G Wealth Platform. If they also have other family members with investments on the platform and the total assets of the collective family members on platform are greater than £1 million, then a family group can be created and our all-in platform charge drops down from 0.30% to 0.10%.

So, if the family portfolio totals £1.5 million then our all-in charge would be 0.23%.

Family groups can cover extended families including grandparents and grandchildren. And charges are split proportionally for each member, so that everyone can benefit from the lower cost.

The result

Throughout each of these quite different scenarios, our all-in pricing not only helps to keep portfolio costs down; it also ensures clarity and certainty by not allowing extra charges to add up. Providing a simple, transparent, price that is easy for clients to understand.

If you’re interested in finding out more about the impact of a platform’s dealing capability on client portfolios, M&G Wealth's Sean Hawkins highlights other important details and differences to look out for in how platforms approach exchange dealing, which may also come in handy during a platform due diligence process.

Please note, M&G Wealth and its agents or representatives do not endorse or in any respect warrant any third party products or services by virtue of any advertisement, information, material or content referred to, or included on, or linked from or to this page.