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Behind closed doors: Why are fund managers agreeing preferential deals with platforms?

There has been a lot of hype around the preferential fund deals secured by a handful of platforms in the new “clean” charging environment.

Platforms used to profit from rebates from the fund manager. NOW discounts can only benefit the end client.

But for the fund managers on the other side of these deals, what is the motivation for agreeing discounts through advised platforms? Does shaving off a few basis points really prompt more investors to buy a fund?


To date, only a handful of platforms have announced preferential pricing deals on clean funds.

There are some obvious relationships, with Standard Life Investments, ArchitasOld Mutual Global Investors and other fund groups taking advantage of the platform businesses within their stable to offer preferential prices to clients with whom they already have a relationship.

Among the advised platforms, Standard Life and Axa have ann-ounced discounted deals with a handful of external fund groups.

Skandia , while still offering discounts via a rebate where possible on its platform, has also secured discounted deals for fund managers to run mandates under its managed portfolio service Wealth Select which launched in February.

In the direct-to-consumer market, Hargreaves Lansdown has secured a number of notable discounts on a range of actively managed funds. 

It runs a recommended list of funds, its Wealth 150 and now its core list of 27 funds, Wealth 150+. The company heavily markets the fact it has cheaper prices on certain funds than its rivals. 

Investment consultancy Gbi2 managing director Graham Bentley says fund groups see an opportunity to attract interest from D2C customers by offering a discount price. He says: “Thinking about why one organisation may have greater leverage than another to persuade a fund manager to give them a better deal, clearly where it is bel-ieved that you influence distribution like Hargreaves there is a reason to offer terms.” 

Advised platforms

But the rationale for offering cut-price deals on advised platforms is less apparent. No advised platform has lists of recommended funds.

Henderson initially agreed to be part of the discounted range of funds on offer from Standard Life when the deals were first announced last year. In March, when the platform came to confirming the prices it had achieved, Henderson had dropped out.

CWC Research managing director Clive Waller says there is no influence for the platform since they have no scope to dictate adviser behavior.

He says: “If platforms are going to promise extra money to a particular asset manager, where is it going to come from? Are they suddenly going to say they will persuade their IFAs to give someone more money? They cannot do that.”

Bentley agrees. He says: “You look at UK advised platforms that have a self-select model. The question is, if nobody is doing the selecting other than the IFA, why give a better deal?” 

Blackrock , Investec, Old Mutual Global Investors, Schroders and Threadneedle declined to comment on why they have decided to agree preferential terms.

Invesco Perpetual has secured preferential deals with Standard Life and Hargreaves.

Head of UK retail Ian Trevers says: “The reason we have preferential terms is because the scale of some platforms allows us to work with them and generate economies of scale. The platforms that have our Y share class have tens of thousands of clients and the economies of scale become very real at that point.”

He adds: “It is very clear advisers choose platforms for efficiencies, accuracy and sometimes because they do certain types of business. Advisers are not choosing platforms because they can get funds at a certain rate. Some firms have tried to use this as an opportunity to buy distribution but we do not view the market that way.”


A recent report from CWC Research indicated attempts to “buy distribution” by offering a discounted price are likely only to have a limited impact on flows into those funds.

Bentley says: “If you were a fund manager, the only way you would want to give away some of your margin is for distribution.”

He believes fund groups that offer preferential terms have done so for fear that multi-manager or insured funds run by the platform’s parent company will view the fund groups less favourably if they decline to offer preferential terms. He says: “Some platforms are multi-dimensional. So there may be a multi-manager opportunity or a linked-life opportunity.”

The “linked life” opportunity refers to the chance to run underlying mandates within other parts of the platform provider’s business.

Waller agrees, saying: “Some platforms control a lot of money so the real threat they could make is that they say ‘give us a deal over here or we will hurt you elsewhere’.”

The Lang Cat principal Mark Polson says: “If you have two funds and both meet your criteria you may select the cheaper one, so there will be some inflow benefits at the edges. But I suspect it is mostly a relationship play because it gets you at the table when it comes to getting good back-book deals.”

Woodford launch

Neil Woodford’s CF Woodford Equity Income fund, launched  in May with a range of share class options, including a ‘Z share class’ run at a cost of 0.65 per cent. That share class has been offered to Hargreaves, Skandia and Standard Life.

For the advised platforms, Skandia announced its price on the Woodford fund at the same time as it confirmed the fund would be awarded contracts to run money as part of its WealthSelect range.

Standard Life declined to comment specifically on the reasons for getting the share class, other than to emphasise that the platform cannot guarantee distribution and believed it secured deals because of its long-standing relationship with funds.

But sources close to Woodford’s new venture have indicated the fund expects to see an insured-link developed. A discount would have been unlikely, Money Marketing understands, without that deal. It is understood rival platforms not offered the same terms were not able to indicate the same distribution opportunities.


Waller says he expects the current round of fund price negotiations to result in discounted pricing settling at around 0.6 per cent for certain funds. 

But he says once consensus is reached, there will be further pressure on fund groups to try and undercut their rivals.

He says: “Someone is going to have to seek competitive advantage by going a bit further. Don’t forget, we are talking about a hugely inefficient industry so there is a long, long way to go. 

“So I think you will see a move over three years towards 60 bps and then you will see another move.”

Bentley agrees the fund management industry will become leaner as price competition bites and that preferential pricing could be just the first example of fund managers being squeezed on price.

Polson says although platforms are right to try and secure discounts where possible, the volume of business going through advised platforms should be used to negotiate the 20-30bps discounts agreed by institutional investors. 

He says: “In the platform world we are still working with retail fund pricing. At what stage do platforms start to really see their clients benefiting from proper institutional pricing by using the volume of money going into these funds to negotiate and move the conversation on from retail fund pricing altogether? It would mean some changes but it seems to me to be an open goal.” 

Expert view


The launch of Neil Woodford’s fund is starting to look like the first real glimpse of the new interplay between platform and fund manager pricing. Due to the transparency requirements introduced by the RDR – and the high media awareness of platforms and Woodford – the process is very much in the public eye.

Ultimately, it all comes down to distribution. When Hargreaves Lansdown sent its Information Pack and Request for Proposal for fund groups to be included on what is now its Wealth 150+, this was clear. The document anticipated “significant assets under management flows” for included funds (and in its April interim statement, it confirmed that 30 per cent of new flows had been into the Wealth150+).

Distribution is very different in the adviser platform market, with advisers required to ensure they only use a platform “which presents its retail investment products without bias”. Cofunds ’ thinking seemed to be along these lines when it almost proudly admitted it would not be getting a discounted Woodford share class since it could not secure distribution.

Another area where I think the platform/fund manager pricing dance is interesting is around how preferential rates have been implemented. It was widely expected after the platform paper and HM Revenue & Custom’s tax decision that clean and preferential share classes would prevail and rebates would wither. This was expected to lead to a race to the bottom as fund managers struggled to restrict their superclean share classes to favoured platforms. What we have seen is the persistence of unit rebates and the use of mandates to deliver discounts. It is interesting to note Hargreaves clients will pay the 65 basis points for Woodford’s fund and receive a 5bp rebate rather than pay a straight 60bps.

Richard Bradley is head of data at The Platforum

Adviser views


Managing director, Concept Financial Planning,  Paul Richardson

Most of the platforms getting discounts are insurers. I don’t believe people select funds because of the price on a particular platform alone so there must be more to it. If a business is running a fund, they are looking for distribution. That means if they give away some margin, it has to be made up somewhere else. 


Director, Pilot Financial Planning,  Ian Thomas

I can see why a D2C business could be seen as a distributor but in the advised market it is more difficult as platforms are supposed to present funds without bias. Why would a fund group give away margin without getting something in return? Platforms that are not able to secure those deals might well look at it and wonder if this scenario is really delivering a fair deal to everyone.


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