FCA rules on platforms which came into force in April are intended to ensure that platforms are remunerated by clients rather than through any form of commission by fund managers. However, platforms are allowed to continue to take payments from fund managers for a number of ancillary services.
These include payments for marketing and for the provision of management information to fund managers, as well as some margin split between the platform and stockbrokers.
The FCA’s platform paper banned payments between fund groups and platforms but made exceptions for certain payments covering the correction of pricing errors, corporate actions and giving feedback on sales trends. A number of platforms already charge fund managers for such services.
Some wraps charge between £10 and £12.50 per trade although it can cost less for the underlying stockbroker to execute the trade.
The profit made on top is often split between the platform and the stockbroker. The Lang Cat principal Mark Polson says platforms which take the margin from stockbrokers should disclose charges more clearly to clients.
He says: “Where certain platforms are making money out of these trades, it should be set out explicitly to affected clients. There is not necessarily anything wrong here but all firms should be disclosing where they take a profit.”
Transact chief executive Ian Taylor says trades on the platform vary in cost depending on the amount of trades taking place at the same time.
He says: “If you can do the trades on a bulk basis then it is going to be cheaper than if one client is the only person making that trade on that particular day.”
Tariff of charges
Hargreaves Lansdown announced earlier this year that it will charge fund groups up to £10,000 a time where it carries out work on behalf of a fund manager. These charges were previously covered by commission paid to Hargreaves by fund houses.
The company sets out a tariff for charges divided into simple events, complex events, pricing corrections and management information requirements.
Larger events which involve substantial mass contacting and mailing cost up to £10,000 while any information sent in Hargreaves’ Investment Times magazine costs £5,000.
Correction of pricing errors is charged at £2,500 plus £6.75 per affected client.
Simple events include administrative fund changes and fund objective communications, which will cost £500 plus £6.75 per affected client.
Hargreaves says in 2012 the average simple event required the contacting of 730 clients. Therefore the average fund manager charge for such an event would have been £5,427.50 (£500 + £6.75 per client).
The average complex event required 342 clients to be contacted so the average fund manager charge would have been £4,808.50 (£2,500 + £6.75 per client).
Hargreaves is also looking to sell management information to fund managers and has a review of a potential service under way.
In a letter to fund groups, Hargreaves said: “In preparation for this regulatory change, we have been considering the work we do for fund management companies. Hargreaves Lansdown currently handles various activities such as corporate actions and dealing error corrections.
“This activity costs time and money to complete and saves fund management companies considerable sums through lower third-party administration fees when dealing with Hargreaves Lansdown’s pooled client trades and unit registrations.”
Quality of data
Gbi2 managing director Graham Bentley says where platforms are looking to charge fund managers for management information, the data being delivered has to meet a
He says: “Sometimes the platform data is not of great quality so fund groups could in some cases be reluctant to pay a lot of money just for the sake of having it. However, it is now a regulatory requirement that fund groups have client information so they need to be getting it from somewhere but they are not necessarily happy about it.”
Money Marketing understands that at least one fund group has refused to pay a platform for management information while an asset manager says it will load any charges it has to pay into the charges on the fund.
Stocktrade recently changed the way it reports charges for trading. Standard Life is taking a 12.5 per cent commission on all equity trades carried out within its Sipp and the payment to Standard Life is now set out to advisers explicitly.
Standard uses Stocktrade as its nominated broker for all stock trading within the Sipp.
The information shows that Stocktrade pays Standard Life 12.5 per cent commission on each equity trade with the total charge per trade ranging from £20 to £50.
Axa Elevate is in the process of trialling the provision of data to fund groups and will decide what the service will cost if the trial is successful.
Axa Elevate chief operating officer Andrew Smith says: “We are testing this with asset managers over the next few weeks to determine what would add most value, how they would like this information delivered to them and at what cost.”
Standard Life head of investment group relationships Graham Dow says: “We think aspects of this data have a value and are considering passing this on to fund managers at a cost.”
ADVISER VIEW: Dennis Hall
Platforms will come under pressure to reduce trading charges because currently it can be quite expensive if you do a lot of trades. The adviser platforms certainly look more expensive than direct guys at the moment.
Dennis Hall is managing director at Yellowtail Financial Planning
At a glance: The FCA rules on platform payments
- Payments between fund managers and platforms on new business were banned from April
- All legacy payments on past business between fund managers and platforms will be banned from April 2016
- Platforms can take payments from stockbrokers carrying out the underlying trades on the platform
- Payments between fund managers and platforms are permitted for corporate actions, marketing allowances, correction of pricing errors and giving feedback on sales trends
- Platforms can bill fund managers for administrative expenses incurred as a result of work done on behalf of fund groups