Platforms not seen as distributors by 50% of asset managers

Outsourcing provider International Financial Data Services (IFDS) reported that companies that "promise a flow of funds" will stand to benefit from discounts, but said that different asset managers have different ideas about how significant that flow of funds would need to be for discounts to be made available.

"The scale varies from £25 million to, probably, £500 million, according to size of asset manager, size of fund, capacity etc, etc," IFDS said in a summary of a new study it has released into fund share pricing post-rebates seen by Out-Law.com. "Many asset managers made the point, unsolicited, that they do not see platforms as distributors, rather as aggregators. Thus, platforms, per se, would not qualify for discounts."

"Promise of flow means a restricted or vertically integrated proposition," IFDS analysed from the responses it received from the surveyed it commissioned. "This also may exclude some platforms and genuinely independent businesses."

Clive Waller, managing director of CWC Research which carried out the survey on behalf of IFDS said: "Asset managers will want a bang for their discounted buck in the form of promised fund flows, which could mean a drift to restricted propositions and vertically integrated firms."

Many platforms have taken the decision to move away from offering financial products for investment that involve issuing rebates to investors, which can sometimes be offered as an incentive for selecting particular products to invest in. The move within the industry comes after the Financial Conduct Authority (FCA) outlined plans to restrict cash rebating and follows an earlier announcement by HMRC that rebates, whether in cash or unit form, would be subject to income tax deductions.

Several platforms have subsequently announced a change to their business models in order to avoid having to account for rebating and income tax calculations and as such have been seeking to switch clients' assets over to ones with 'clean' share classes, where neither commission nor rebates are payable.

A number of platforms have, however, raised concerns about the cost that will be associated with transferring clients from products with legacy share classes to those with clean share classes.

According to IFDS' research, 75% of the asset managers, platforms, discretionary fund managers, financial advisers, transfer agencies and data publishing houses surveyed predicted that the rebates restriction would cause confusion.

"Transfers and re-registration between platforms are seen as a problem," IFDS' summary report said. "Whilst price cuts are forecast, others question an overall reduction when total costs are being increased by the introduction of extra share classes."

Most financial advisers surveyed said they would consider changing funds if discounts are not applied to them because of the general availability of alternatives. IFDS predicted the number of advisers benefiting from discounts to "expand rapidly" under the new pricing model.

"While increased transparency is clearly a positive step, concerns are that a distinct lack of consistency around what the various stakeholder groups are looking to achieve will very possibly lead to further confusion for the consumer,” David Moffat, group executive at IFDS, said. "For example, a lack of standardised naming conventions as the proliferation of share classes grows and a lack of understanding around the commercial terms will possibly deter consumers. An important consideration will be educating and communicating clearly with consumers."