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Race to the midriff – Transact cuts its charges

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Here we go, been a while since someone monkeyed around with their charges. The lang cat patented Recursive Pricing Engine (with integrated Turing Guessing Module) was getting a bit dusty, so this is just the thing.

Now, Transact. The grandaddy of the wrap market has an interesting proposition. It unashamedly occupies a premium pricing position, something which advisers and clients are either fine with – on the basis of famously excellent service – or not. Those in the ‘not’ camp simply go elsewhere, no problem. The service in question is – at least with the users we speak to, and there are plenty – nothing to do with the technology, which was described to us recently as ‘creaky’, but is all to do with the quality of the people, described to us recently as ‘oustanding’ and ‘unparallelled’.

In many other businesses – some very big ones – a reliance on bodies rather than very shiny new-world tech has led to a lack of profitability and some pretty hairy times. Transact doesn’t suffer from this. It’s profitable and has been for some time. It doesn’t get caught up in marketing arms races or in price wars. But what it does do is – from time to time – apply some of its profit into reducing client charges.

And that’s what it’s done today. Here’s how it works (from the horse’s mouth here).

  • Portfolios under £300k – the first £60k is at 0.5% and the rest is at 0.325%
  • Portfolios over £300k – the first £600k is at 0.325%
  • Portfolios over £600k but under £1.2m – the 2nd £600k is at 0.2%
  • Portfolios over £1.2m – the excess over £1.2m is at 0.075%

First reactions – this is a reasonable cut from the previous levels. For example, a £100k portfolio held in an ISA (there’s a £12pa wrapper fee), used to come in at 0.48%. Now it’s 0.44%. £200k used to be 0.45%, now it’s 0.38%. So this is a welcome reduction, but we shouldn’t get our knickers in a twist. Transact isn’t in the habit of falling on its sword for volume at any price, and this is a modest cut.

Let’s have a look at a table…

Portfolio size

£50k

£100k

£200k

£500k

£1m

£5m

AJ Bell

0.26%

0.23%

0.22%

0.21%

0.20%

0.10%

ATS IFO

0.24%

0.12%

0.06%

0.02%

0.01%

0.01%

Ascentric

0.36%

0.29%

0.27%

0.26%

0.25%

0.13%

Elevate 2013

0.34%

0.32%

0.32%

0.28%

0.28%

0.28%

Cofunds

0.37%

0.33%

0.30%

0.26%

0.22%

0.16%

FFN

0.34%

0.29%

0.27%

0.26%

0.25%

0.25%

Nucleus

0.35%

0.35%

0.35%

0.35%

0.35%

0.26%

Skandia

0.43%

0.39%

0.34%

0.32%

0.28%

0.18%

Standard Life

0.40%

0.40%

0.38%

0.32%

0.27%

0.17%

Transact

0.52%

0.44%

0.38%

0.325%

0.28%

0.12%

 

A couple of notes – ATS IFO is Alliance Trust Saving’s inclusive fee option, which we wrote to our subscribers about earlier this year. If you missed it, get subscribing. For AJ Bell and Ascentric we’ve included some trading costs, but we haven’t done that for Transact (buy trades are at 0.2% or 0.1% for portfolios over £1m; no charges for portfolios over £2m). So we’re understating Transact’s charges a bit here depending on portfolio turnover.

Nonetheless, in the key wrap heartland of £100k – £500k we can see that Transact has come much closer to the market. At £200k, its 0.38% compares well with Standard Life Wrap (also ‘premium’ priced), and is in the hunt against Elevate, Nucleus and Skandia. It’s still not troubling the lower priced guys – AJ Bell, ATS, Aviva, Ascentric (seriously, what is it with companies starting with A in this market?) but I suspect that won’t bother the Transact team too much.

Criticisms – this is less complex than the old system of percentage discounts but it’s still insanely complex – the £60k / £300k interaction thing is a pain and I really wish people would stop doing charges to 3 significant figures. Not big and not clever; either round down and take the hit or round up and take the margin. It’s still probably a bit toppy at the £100k mark; advisers would like to use Transact there but it’s hard to justify 44bps for an ISA when you can get a perfectly reasonable one for 25bps or less. Portfolios smaller than that clearly aren’t the target market so, y’know, whatever.

Good things – right up at the top Transact remains very competitive (sometimes mid-market price cuts come at the expense of the big guys). In the £200k – £500k target market it now has stopped itself getting ruled out on charges and is on the market-ish, which for a platform which prides itself on going above and beyond adviser expectations with a very personal service (no, not that sort) is probably good enough.

One plea. This isn’t a race to the bottom. Transact is coming more in line with the market, that’s all. If it’s a race to anything it’s to the midriff, much as Elevate did last year. Let’s not get too excited, but let’s give credit where it’s due. I think despite its modest nature this could be a real game-changer for Transact, and more power to its collective elbow.

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About Mark Polson

lang cat founder and boss. Expert on all things platforms, pensions and investments. Prolific writer and public speaker, even when people ask him not to be. Knows more about Scandinavian black metal than you, and isn't afraid to prove it.