What do investors and advisers look for when choosing a fund platform? While the easy assumption is that this is a debate about price – that the default option for most people will be to choose the cheapest possible fund-buying service – the reality is more complex. And when platforms neglect the rest of the value proposition, they risk getting left behind.
Cheap certainly can be cheerful. But choosing to compete almost entirely on the basis of price gives platforms a number of headaches. Most obviously, this is a race to the bottom – in a price war, you have no option but to continue under-cutting the opposition, whatever it does, slicing margins ever thinner and eventually moving into loss.
In any case, offering the lowest prices is not the same thing as establishing your platform as the cheapest in the market. In an industry where charging structures are complicated and trust is in short supply, there is no guarantee that investors will correctly identify the cheapest deal for their particular needs, or feel confident in their decision-making process.
The broader point is that most investors and advisers want more from a fund platform than the absolute cheapest fees – they don’t want to pay over the odds, but other factors are important too. They include:
- Range of funds available – if an investor wants a certain fund and it isn’t available on a particular platform, he or she will be forced to look elsewhere for the purchase, and is unlikely to come back. For example, those platforms which still haven’t been able to offer closed-ended investment funds to intermediaries should consider this.
- User experience – making an investment decision is in itself time-consuming and stressful, so the last thing investors want is further frustration when they come to execute their plans. Platforms need to offer a seamless experience with accessible and responsive support facilities if they are to keep investors’ business.
- Portfolio tools – while platforms offer an execution-only service with no independent financial advice, those that provide investors with easy-to-use tools and research facilities with which to reach their own decisions are likely to secure market share. The increasing inaccessibility of independent financial advice in a post retail distribution review-marketplace means these tools are indispensable for many investors.
- Adviser tools – those platforms aimed at intermediaries need to offer tools specifically targeted at these customers, from data provision to relationship management and reporting functionality.
None of these potential differentiators is necessarily easy to talk about, particular in the pithy soundbites required for advertising and marketing. This is one reason why platform providers so often focus on price as their key tool for recruitment and retention – charges are quantifiable, whereas other key platform attributes are more subjective.
This approach, however, ducks the issue. There may be room for one mass market platform to win market share on a commoditised offer that depends on volumes for profitability. But in a world where most investors are looking for help as they make their decisions – intermediaries included – price isn’t going to be what clinches the deal for most platforms. Rather, those that provide the services users need – and manage to communicate their value proposition most effectively – will be the long-term winners in this marketplace.