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Platform fees trim dividends from investors’ portfolios

Platform fees trim dividends from investors’ portfolios

29 April 2009 | by Benjamin Levy

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Platform fees that are charged by platform providers are taking too much out of advisers’ clients, and clients don’t realise how platform fees can impact on their dividend income over time, according to the director of Capel and Associates, Rick Capel.

While there is proper disclosure in terms of external platform fees, clients don’t understand whether the fees are reasonable or not. Advisers who forgo investing their clients’ money through an external platform and invest their clients’ shares directly with their own internal platform can save clients up to 80 basis points in fees, Capel said.

Capel said that in a normal market environment when an asset class does particularly well, when the profits are realised in rebalancing the portfolio, part of those profits will go towards paying platform fees. That practice was questionable in the current market turmoil.

“In this period where most of the asset classes have gone south, I question the practice of rebalancing a client’s portfolio, which may crystallise losses simply to refloat the cash account in order to pay the adviser or dealer fees.

“This rebalancing exercise creates an unethical bias, which any professional adviser should avoid because their fees have to be paid out of asset sales,” Capel said.

Portfolios should be modelled around cash flows so that clients can tell how much of their investment dividend is going towards the cost of operating the platform, he said.

Stuart Holdsworth

Author Stuart Holdsworth

Stuart has over 30 years of experience in the use of technology for the strategic competitive advantage of businesses in the financial markets and investment industry.

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