Hello all, welcome back and I hope the crushing realisation that one digit different on a calendar doesn’t really make much difference to anything hasn’t hit you yet. Certainly I can report that January is far too dangerous to attempt without help, so while I love and respect all of you equally (maybe not exactly equally), you may keep your tales of self-denial in this most brutal of months to yourself.
A very short Update this week as we’re not really all back into the swing of things yet. But I will just point out this story in which Intelligent Money – the SIPP business that proves nominative determinism doesn’t work – has decided not to go ahead with a blanket 1% new from-out-of-nowhere charge after all.
Fair’s fair, at least IM has been honest and said “we’ve not done well there, sorry” – something others could probably learn from. The idea of trying to make up for the fact your charges aren’t sustainable by whacking clients with a big (remembering there will be some chunky SIPPs in there) surprise fee is right up there on the list of Awful Ideas, and you have to question what kind of thought process got them to the point of ever planning it.
Somewhere in there is an interesting wider point, though. The SIPP world, just like the platform world, is super competitive and businesses who offer low, low charges are rewarded with new flow. It’s usually a fixed charge in SIPP world, a percentage charge in platforms, but the dynamic is the same. The question for our brains this week, then, is this: how low is too low? At what point do providers of whatever stripe and hue start self-harming in the pursuit of new business?
Let’s put it another way. Larger firms, especially those who don’t pretend to be independent and who can force significant assets onto their chosen platform, can pretty much set their own price now. Somewhere in the 0.12% to 0.15% range is commonplace; with deals lower than that generally going to the adviser-as-platform model. It isn’t cheap to run a full service platform at scale, and if you think you have a lot of regulatory costs as an advice firm, just try doing CASS. But if you can’t spam your clients with additional charges from out the blue, your only way of getting revenue up (apart from widening your offer to investment or advice) is to grow. And to do that you’re going to be forced into price plays.
The newer guys will say they can do it all on a much lower charge than the big incumbents, and that’s true at the moment, but most of them are pre-profit and that can’t go on forever. Can they do the same trick at scale, with all those extra costs and bodies, and adviser firms wanting good service when things go wrong? We don’t know yet, but it does strike me that inefficiency and complification is just something that happens in businesses that grow very large, irrespective of how good their tech is. It’s a human thing.
Anyway, there’s a whiff of ever decreasing circles about this, and I do wonder if, with things being tough out there and outflows rising, deal-making and racing to the bottom might be less of a priority for a bunch of businesses which we actually do need to be sustainable and profitable. Maybe 2024 will be different after all. Shall we find out? Go on then.
Your music choice is a lovely thing that just came out today from Tom McRae, who you may remember also provided our Christmas tune. It’s called Wild Love and I am wildly in love with it.
