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Platforms criticised over sluggish rebalancing times and fund set-up costs

People in front of a bright keyhole openingPlatforms are coming under increasing fire for failing to fix sluggish processes for switching funds and for placing unduly high charges on new fund listings.

Technology is advancing at a rate of knots, but financial services still seems to be falling behind. The idea of an investment platform is to help advisers and their clients keep hold of all their funds and other investments in one place, in theory making it quicker than changes to portfolios by post.

But a senior source tells Money Marketing that rebalancing of funds is still taking upwards of 10 working days to make changes on some platforms. This means, should there be a major market correction, investors could lose money during the course of those two weeks due to the technology not being up to speed.

Many platforms do not have specific timings they must execute switches by within their terms and conditions. Some do say they could happen by the next day, but the stipulated lag for fund switches for unit trusts can be between three and five working days.

Calls for better links between platforms and back-office tools grow

But there is not just a speed issue at play. A source tells Money Marketing that the biggest challenge with platforms is bringing a new fund to the market. They say: “Platforms have turned around and said unless they see demand for the product, they don’t put it on the platforms. Their argument is that they say there are legal requirements of holding the fund which will set them back roughly £5,000.

“But how are they going to get the demand if they are not on the platform? So when platforms said initially they are there to help increase distribution, today they are restricting distribution, unless you are willing to spend a lot of money on things like advertising and marketing campaigns.”

The source says this is no problem for the large fund houses because they have surplus profits, but if it is a small group with a limited budget, it is increasingly difficult to get the exposure on platforms.

They add: “The first thing a wealth manager says to me is, ‘what platform is it on?’ I feel we are between a rock and a hard place the whole time.”

This issue has become more prominent over the past two or three years – previously there were far fewer problems with getting a new fund on a platform.
The source says: “My guess is that platforms are not making enough money so they are trying to find ways of cutting costs. It is why we are seeing consolidation in the
platform market.”

It should be the fund and marketing managers dictating distribution strategy, not platforms; it’s the tail wagging the dog

They say Transact is the only platform they have no problem with getting a new fund on. “[Transact chief executive] Ian Taylor understands that to get a product into the market you need to put it in the shop window. But today, the platform is the shop window.

“It should be fund managers and marketing managers dictating the distribution strategy, not the platforms; it’s the tail wagging the dog,” they add.

“They always come up with an excuse. First it was RDR, then Mifid II and Priips, and now in Aegon’s case its platform integration.”

Improving the way platforms work is not just down to distribution and speed. Due diligence and keeping up with adviser and client demand and speed is something that platforms will need to correct in the coming years.

Consultancy AKG communications director Matt Ward says: “What the FCA is saying about due diligence is it has to be deeper. That’s not just increasing it from 80 to 100 questions, it’s looking at the components.”

Platforms questioned over readiness for Mifid II cost disclosure rules

This comes amid recent news of Cofunds’ troubled re-platforming to Aegon, which is still suffering many weeks after its May Bank Holiday relaunch. An apology from Aegon sent to its clients, seen by Money Marketing, states the platform upgrade has “no impact” on client records, products and investments but admits the service levels to the end clients and their intermediaries have fallen “below standards”.

The letter goes on to say: “This isn’t the fault of your intermediary, but is our problem and one we’re determined to resolve.”

Ward says: “Tech upgrades have been going on across companies for years. Life companies’ annual reports and accounts would have covered the platform and that’s always been such a big sell, so they’ve hung themselves on that.

“It’s what they wanted to talk about, but it’s about delivering on what was promised.

“[Pension] freedoms were an opportunity to regroup and decide exactly what platforms should do. It’s a shot in the arm for them after a period of stasis for some.”

At the end of June, the Transfers and Re-registration Industry Group, made up of representatives from 10 trade bodies, published a framework for firms to work to with the aim of carrying out efficient transfers of investment products
and assets between providers and pension schemes.

Group chair and Hargreaves Lansdown retirement policy head Tom McPhail says: “This framework creates a benchmark against which the regulators can assess companies’ commitment to treating their customers in a fair and efficient manner.”

He adds: “Adherence to the framework will not be mandatory at this stage, however we do expect regulators and government departments will be looking at which firms have chosen not to adopt the framework.”

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