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Other platforms may follow JP Morgan's lead and cut 'unpopular funds' from D2C portfolio, says expert

Out-Law News | 13 Jan 2014 | 5:10 pm | 1 min. read

Platform providers may follow JP Morgan's lead and cut down on the number of funds they offer customers the chance to invest in for cost reasons, an expert has said.

JP Morgan has announced that it is to stop selling funds it does not operate itself on its 'direct-to-consumer' (D2C) platform from 7 March this year. A spokesperson for the company told Out-Law.com that the change in approach followed a "strategic review" the company had undertaken of its D2C business.

D2C platforms offer consumers the ability to invest in financial products, such as stocks and shares, without doing so through a financial adviser, although some D2C platforms do offer retail investment advice through the information they display.

"We are realigning our focus on our core competencies of fund and product management across all of our business areas and, as a result of the strategic review of our direct-to-consumer business, have decided to provide only our JP Morgan OEICs (Open Ended Investment Companies) and Investment Trusts to clients," the spokesperson said in a statement.

"Effective 7 March 2014, we will no longer offer funds and investment trusts that are not provided by JP Morgan. We also will cease to offer exchange-traded funds (ETFs), bonds or gilts and JP Morgan Société d’Investissement à Capital Variable (SICAV) funds," they added.

JP Morgan has 150,000 D2C platform clients. Only 2% of that client base will be affected by its decision to stop offering third party funds for investment, the company said. However, existing holders of assets in third party funds will be able to hold onto those assets beyond 7 March. They will not, though, be able to buy any new third party funds after that date, it said.

Financial services law expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said that JP Morgan's approach appears, at first sight, "to be an extension of the move towards focusing down the number of funds available on platforms".

"The new rules in force from April will prevent fund managers from paying platform charges with only very specific exceptions, and favourable arrangements cannot be made for proprietary funds," Ashby said. "Platform providers will be considering carefully how the funds on their platform enhance their proposition for their customers and these regulatory changes will make them more likely to conclude that unpopular funds do not justify the costs of inclusion on the platform."

"Proprietary funds will probably be the easiest to include operationally and provide their own income stream, so the move makes sense for platforms with minimal investment in external funds. However it will change the nature of the platform and so I do not expect we will be seeing the bigger wrap platforms going this far," he added.