In today’s world of comparison websites, flash offers, and the constant chase for a ‘good deal,’ it’s easy to be tempted by the cheapest option when selecting an investment platform. After all, why pay more when it looks like you can get the same service for less?
But as with most things in life, you get what you pay for.
The impact on returns of cutting a few basis points might feel like the right thing to do, but it can come at the expense of the value and service - both crucial to long-term success.
According to recent findings from the lang cat and Investment Trends 2023, low overall cost to clients is the second most popular reason advisers choose a platform. Yet 36% of those advisers abandon ship within 12 months due to poor service.
It’s a telling statistic that underscores the hidden cost of going cheap. While the client typically pays the cost of the investment platform, the adviser pays for the cost of poor service. With the cost of running an advice firm on the rise, all these hidden extras impact profitability and the adviser’s ability to deliver their client proposition. The impact of Consumer Duty cannot be underestimated when assessing all aspects of running an advice firm.
Cheap investment platforms: the hidden trade-offs
One of the most common pitfalls of the lowest cost investment platforms is the lack of investment in continued improvement and service. Advisers can quickly find themselves stuck with sluggish support, just when they need it most. It’s frustrating, especially when time is money, and your firm’s reputation is at stake.
Then there’s the tech. Lower-cost investment platforms typically have to invest carefully, resulting in clunky interfaces, slow processing times, or worse – security risks. These issues can create serious headaches when managing client portfolios. And if you and your clients’ needs evolve? That’s where cut-to-the-bone platforms often fall short. When innovation in products, process and capability is limited, so is your ability to diversify or implement more complex strategies. It’s fine for a basic portfolio, but what happens when your ambitions grow?
Quality service comes at a cost
When corners are cut, it shows in the service the adviser receives. This doesn’t just mean ‘how long does it take to answer the phone?’ but more often ‘how often do you solve my query first time?’. This level of excellence needs constant investment in the service model, digitisation and the underlying technology. Platforms that understand the need for constant innovation invest in the right people and technology, making sure everything runs smoothly, and you get the seamless, responsive experience you deserve – no matter what the markets are doing or how customer expectations are changing.
Is it worth paying a little bit more for a higher-quality platform?
Think about what you’re paying for and weigh up cost versus value, i.e. the experience your platform partnership will help you provide for your customers. This goes way beyond tech - it’s a holistic service made up of people, process, culture and the platform’s ability to solve your problem. Ultimately, you’re buying peace of mind for you and your clients. A true platform partner is interested in supporting your success, reducing risk and driving down operating costs in your firm. A true platform partner supports you in delivering great outcomes.
This is very unlikely to be one that cuts their costs to the bone or attempts to make you believe that their shiny new tech is the answer to your servicing woes.
Paying a fair price for a platform that continues to invest in the functionality and service model you need means you’ll have access to better support, up-to-date technology, and more robust investment tools— all of which contribute to more efficient and successful client and portfolio management.
Ultimately, an investment platform should be viewed as just that – an investment. The cheapest option isn’t always the best, and in the complex world of investing, the right platform can be worth every penny. So, before jumping into what seems like a ‘good deal’, ask yourself: are you truly saving, or are you setting yourself and your clients up for unnecessary compromise?
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
