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Platform price war

Kira Nickerson Investment Matters

As the Cofunds tariff war rumbles on, the issue of future distribution trends and pricing power is taking centre stage. While commercial deals are always being struck in this industry, the Cofunds scenario ahead of RDR is posing some serious questions for groups and intermediaries alike. There is the obvious commercial aspect of who gets the most favourable deal and on what basis?

But there are other, longer-term issues being raised. After RDR, intermediaries have to be more trans-parent with their pricing to clients so will platforms have to do the same? As prices are squeezed, what will it mean for the range of funds available to IFAs using platforms? The low cost of tracker funds is already hard to accommodate on fund super-markets but with rate hikes, this will only get worse.

Will IFA clients be forced to pay a higher price for such a fund via a platform than direct clients? What will that mean with regards to TCF or the potential growth for products such as ETFs? Cofunds says it is already considering such implications and intends to unbundle its prices next year ahead of RDR to allow for a wider range of low-cost, no-commission products such as investment trusts, ETFs and direct equities.

Another aspect to be considered is which of the platforms will survive and which will thrive? According to latest figures from the Pridham report, over the third quarter, Cofunds saw more in sales than Fidelity and Skandia combined but that was mostly via Isas and unwrapped business while the latter two continue to excel at pensions. Cofunds was second in Isa sales with £312m compared with HL Vantage’s £336m while in unwrapped fund sales, the group took in £1.7bn over the quarter. The next best seller for unwrapped sales was Skandia at £443m and then Fidelity with £397m.

But with pension assets and investment bonds, Skandia still dominates. The Pridham figures show that over the third quarter, Skandia took £166m in investment bonds and £533m in pensions compared with Cofunds’ £83m and £123m respectively and Fidelity’s £11m and £282m.

Cofunds is growing fast and taking a dominant role in certain areas but, like funds that go in and out of favour, can and will it continue? If IFAs leave the market after RDR, many expect that the direct consumer channel will increase. If that is the case, will Cofunds, without a direct arm, continue to be strong or will the advantage go to its rival FundsNetwork, which offers both consumer and intermediary? Cofunds says its strategic imperative after RDR will continue to be with financial planners and it has no intention at this time to look direct.

But if a group agrees to Cofunds’ rate hike now, what is to stop other distributors from raising theirs? It is said that FundsNetwork has a clause in its existing contract with some prov-iders that allows for a “shelf-space” fee but so far this has not been charged. The success of Cofunds’ negotiations with groups brings into question if or when added fees could emerge.

Cofunds’ attempt to raise its prices has not gone over very well and the platform is said to have severely backtrack on its original plans. The scheme, as revealed this summer in Money Marketing, was originally for providers to concede extra basis points based on a ranking in four price tiers. The applicable price tier depends on a combination of a group’s back book of business on the platform as of December 31 and new inflows starting in January.
While it has been announced that some fund groups have agreed a deal with Cofunds, talk of rebellion at the price hike continues to grow in strength. Countering that, Cofunds director of fund manager relations Russell Lancaster says pricing discussions are looking positive and a number of deals have been made.

While Cofunds’ original price plan was convoluted enough, it has since become even more so as individual deals are struck. It is now under-stood that Cofunds has completely backtracked on the most conten-tious aspect of its new price struc-ture – the back book of business already on the platform.

Apparently, the top 30 companies are now exempt from this portion of the tariff calculation and the fee associated with front end is also shrinking for the big players. But the determination of a “big” group is not defined by assets under management. The top 30 groups feature a number of small boutiques and exclude some of the biggest asset managers.

Instead, the top groups are determined by inflows on the platform. This brings up the issue of which companies have pricing power and when. Consider how inflows change depending on the popularity of asset classes and investment styles. Last year, Blackrock’s absolute return fund was taking in a large portion of overall inflows while this year it has been bond funds, favouring M&G and Invesco Perpetual.

Companies outside this top 30 are said to be faced with a “pay or leave” dilemma on the Cofunds pricing deal. But some of these groups also say they are negotiating away the back book, with some exchanging a higher charge on new inflows for a lower portion on the back book. The range between the deals being hammered out varies widely and that is causing dissent and after the RDR it may become more apparent just who got what deal.

Lancaster will not comment on individual deals or the assertion that the back book element has been discarded for some providers but says there has been no talk so far of any group leaving the platform. Instead, more discussions about new groups coming on to the platform are taking place, he notes. “We are acutely aware we need to retain good relationships with groups of all sizes. We recognise the importance of presenting the best range of funds available and we are confident we will continue to offer a high-class range.”

The battle over Cofunds’ price deal is forcing companies to take a decis-ion today against an uncertain landscape. But Lancaster says that is always the case with commercial deals in this industry. He believes the best course for any party in any negotiation is to strike a balance between service and price.

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  1. Following RDR I believe that platforms will need to
    deal with both advisers and direct investors. with no trail commission presumably annual charges will fall by 0.5% or will fund managers only reduce charges by a smaller amount allowing more to go to the platform.

    will be interesting to see how many investors decide to deal direct when they are no longer forced to pay a fee or commission ?

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