It wasnt too long ago that 250-350 basis points was a ‘benchmark’ for what an investor would pay on their investments for the provision of advice. Included in this were expert advice, choice / selection of funds, administration of assets, professional investment management, custody, trusteeship and safekeeping, licensing (with insurance), and much much more. I remember that around 2000 that my financial adviser telling me that platform charges at that time of around 70 basis points was ‘pretty good’ value, probably his perspective of what other platforms in the market were charging as opposed to the value to me. That was then, and numbers like 250-350 basis points in charges were the normal and the industry was a ‘price maker’
Today, things have changed somewhat. With changes in regulation, removal of conflicted remunerations and increased competition, the sense of value has changed considerably and the new perspective of value is now what the investor perceives as value as opposed to what the supply chain was providing. Thus the benchmark for pricing is now often what an investor can obtain themselves without an adviser. In the old days where this meant picking stocks, the clear proposition of active managers was clear, but today with the substantial growth of low cost passive index funds, the options are far broader and more competitive. With the opportunity to buy index based ETFs on an exchange for single digit basis points (0.0x% of assets per annum), the benchmark that advisers are having to compare themselves has changed from what the industry was providing to support their business models to what the consumer can get themselves. Essentially this is the baseline from which their charges need to add value to for a consumer to be convinced to sign them up for their services.
The implication of this turn around and change of ‘benchmark’ is becoming increasingly entrenched in the industry, and continues to pose the question about the value that each player in the overall delivery value chain provides in the eyes of the consumer. Interestingly in the UK it appears that the movement of margin has been largely increasing the fees to advisers, and decreasing the fees to the investment managers and platforms where the ‘benchmark’ is what the consumer can obtain investments and associated services directly themselves….which in some cases is single digit basis point fees of passive / index funds.