When it comes to pricing, many master trusts face an endless dilemma – what, if any, rebate should be paid to advisers and what, if any, rebate should be paid to dealer groups?

The quest for optimum pricing on a platform is one of the biggest challenges faced by investment administration companies when it comes to competing for adviser and dealer attention.

On the one hand dealers (in some cases their parent institutions) decide if a platform will be made available to its advisers, while on the other hand once a platform gets in front of advisers, it has to be competitively priced and offer the desired options, functionality and service for advisers to channel client funds through it.

In terms of pricing this means two things.

Firstly, the charges adviser clients have to shoulder (primarily a manager expense ratio and admin fee) need to be reasonable and at least in line with the rest of the market, while the adviser rebate, which some planners pass back to the client reducing the cost of the above fees and instead charging an upfront fee for their services, also needs to be competitive on the upside.

Secondly and before the above can happen, platforms need to get the nod from the dealer groups themselves.

Beyond this a platform then needs to demonstrate proficiency in doing what it is meant to do – efficiently administer investments – for planners to have any inclination towards using it.

The dilemma for the platform is how much of its costing is directed at the dealer group and how much is set aside for the planners themselves?

There is a lot of debate in the industry around the costs of running a dealer group, with the general consensus being that it is not an overly profitable exercise for many groups.

Servicing a network of planners – large or small – is an onerous task and not something that can necessarily be done profitably simply through charging planners an annual license fee.

Therefore rebates to dealers as you know assist many groups in staying in the black. It is then up to the dealer as to how it distributes any of this rebate on to its planners and how much it retains as its own margin for the costs of running the business?

What does this mean for the industry?

Well, it means the industry is unlikely to curry flavour with the media, and thus the public mindset, for some time yet.

This subsidisation of the financial planning sector is holding the industry back and is one of the prime reasons it often faces scrutiny and criticism.

Last week there was significant debate on this website after an article was written relating to fees and commissions (actually it was more about industry funds versus the rest of the industry).

Some people took the moral high ground that commissions are always bad no matter how you look at them.

If this is the case then how come only 3.8 per cent of more than 800 financial planners who participated in this year’s brandmanagement annual platform research study, Fragile Trust, noted they were remunerated purely through a fee for service arrangement, while 42.8% of planners pointed to making their living through a mixture of fee for service and commission?

Perhaps therefore the debate shouldn’t be around fees and commission per se and whether advisers get paid by clients paying an upfront fee or through the investment products themselves, but rather about ways the industry can evolve in an efficiency sense and help reduce planner and dealer reliance on these so-called subsidies?

There are always going to be fixed costs behind delivering financial advice to clients that administration providers cannot reduce through better technology and systems, but any step in the right direction by reducing costs in other areas is good news for planners and clients.

There should always be an option for clients who want advice but do not want to pay or cannot afford to pay a fee themselves to a planner i.e. priced into a product, but if the industry (investment platforms) can strive to help lower some of the non-fixed costs behind giving advice then perhaps advisers can charge clients fees that more people can afford and move financial planning as a profession one step further forward?