The question of membership levels is much wider and, for sure, all decisions up to P123. But this topic was put on community to discuss, why not propose something?
There was another question, about access to historical market data. At the moment Investors are limited to 2 years, Screeners to 5 years. This has attracted Marco
and Steve attention as well.
While I have proposed to change this limits as do agree with Steve, I do agree that market data should be bought one or another way by the customer. Having criticized I do feel responsibility to offer solution. I had no proposed one putting my critics, just thinking of sharing my experience. Now, reading discussion I remembered my ideas on pricing once discussed here on P123 forum in connection to R2G pricing. Other participants ideas added too. So, why not…
Let’s start from P123 business model, marketing and sales (the good).
That is P123 product
- Design capacity for self investors.
- Subscriptions for retail investors.
Note. I think institutionals are out of the game at the moment, I feel there should be done a lot for them to come. Same to investors-guru, requiring open models. This is up to discussion, but lets stick to the real thing for now.
P123 products consumer, capacity
- Designers, 0,01% of world investors.
- Retail investors, 99,99% will fit, having in mind their requirements and P123 possibilities. Some efforts still needed.
POS
- Current portal.
- Newly proposed streamlined website, betterment or wealthfront like.
Membership pricing (proposal)
- While we all prefer fixed price and get max of it, preferably even more, P123 with designers, as professional P123 users, could play open cards. Designer pricing could be variable, activity based cost+. For example: P123 staff cost + cost of historical market data subscription (US, CAN, EUR or TOTAL) + cost of R2G slot x quantity + cost of calculation capacity for 1 live sim/port x quantity + internal advertizing + etc. + basic P123 profit for growth.
- Investors are charged simply by model subscription fee (designer cost + P123 marketing and infrastructure cost + P123 over the basic profit).
There is still internal R2G market for designers. This can be transformed into P123 internal store, adding more products to sell: ranking and hedging, systems, books etc. Current R2G pricing system could be left as is or made a performance based (I know this was discussed earlier as legally impossible, but why can’t I get discount whenever newsletter issuer want this?).
Targeting (the bad)
P123 commercial project and need to pay for what consume, grow and make profit. Can we make this just with designers community? We have $139 designer fee/month. How much capital do we need to manage with P123 having at least 0.5% managing cost per year (there are trading cost in addition)? We need 139*12/0.5%=$333.600 under P123 management. Let me suggest that on average P123 designer managing a lot less, so:
- we need more designers to have less fee and this is impossible at least now as there are only 0,01% who really interested in design.
- we need other income source: R2G.
There were and are a lot of discussions about how to attract new clients to P123 and R2Gs. Let’s remember that one R2G is of less interest to investor, no matter how much capital has. Diversification needed. Having in mind average retail investor doesn’t like too much risk, there at least should be the book with 2-3 different strategies, 20-30 stocks, market timed or neutralized with ETF hedge. All this should be reasonably priced.
Price, targeting (the ugly)
How much taking competitors? Betterment $13/month for $100k capital or 0,15% (0,35% max) annually. Wealthfront $18,75/month for $100k capital or 0,25%. I am not sure are there any hidden fees. But everything is under 0,5% for $100k capital.
As of 2015-04-26 average price of all the R2Gs including free ones was $63. Average subscribed R2G cost is $54 and average fee paid $44. While subscriber naturally pointing on the lower price they are willing to pay per R2G subscription, this is already more than 2 times expensive than the market. Let’s see, how much will it cost for the diversified book to compare apples with apples. $44*3=$132 for a very basic diversification. Make the book of 5 models including bond hedge and get $220/month no matter how much capital you have. This is for free investor membership proposed, so no any P123 fees included. Alpha premium?
To have diversified book of 5 R2Gs with comparable cost of $20 we need R2G average price of $4. We have:
Only 96 of 141 R2Gs with at least 365 days launched period had at least one paying subscriber.
Only 48 subscribed R2Gs cost less than $44.
Only 32 subscribed R2Gs cost less than $20.
Only 7 subscribed R2Gs cost less than $5.
No subscribed R2Gs cost less than $4 (suppose P123 limitation is $5?)
Who are we targeting? What size of capital? 220*12/0.25%>$1M capital. Are we ready to serve this cap with 5R2G’s book? How much of this size capital in the world are interested in a services like us? What mass retail investor are we talking about?
For attractive R2Gs having at least 1 subscriber we have 2612 free slots (including model with $400k liquidity and 499 slots!). Is it that mass retail investor capacity we want to attract? Still this is nice number of potential clients and we still can’t attract even them, could it be average R2G subscription price $54($150-250/book)/month? Alternatively we can try to spend $1M on marketing and advertising. Who is willing to fund this?
I am, for sure, have an investor bias, but let me suggest that solution to a client attraction problem most probably hidden in our client targeting and pricing policy. I suppose I could be wrong in calculations or analysis so correct me if I am.
[quote]
…And there is a lot more difficult question: do we have proved sustainable alpha here to offer? … tkp
[/quote] We still need to compete.
Just another 8 years and we can have competing to ETFs OOS. If P123 and R2Gs will survive then who knows, maybe Vanguard and others will find out our pricing policy more reasonable for the market.