One 2013 study – in conjunction with the International Financial Data Services – found that most fund managers saw platforms, per se, as distribution channels with no clout. An independent platform such as Cofunds cannot influence where business goes. Their IFA clients would be up in arms if they did.
A vertically integrated business is a different story. Standard Life has My Folio; Axa has Architas; Old Mutual has Wealth Select. The asset management business can influence flow if it wishes. Unsurprisingly, each of these has been able to negotiate discounts.
The IFA versus restricted debate has a new dimension. The more restricted the proposition, the greater the bargaining power of the providers. The value of an independent proposition is weakened if the fund prices are 25 per cent greater.
Buying clout has many faces. I have no idea how it might be leveraged but one might observe that Axa is globally a colossal insurer and asset manager; so is Zurich. US businesses such as Pershing (part of Bank of New York), SEI and Raymond James are far, far bigger than they might appear in the UK.
A further complication is that both asset managers and wealth managers are often global businesses. BlackRock, Invesco, Aberdeen and Threadneedle, for example, do business around the world. Barclays Wealth and UBS dwarf the vast majority of UK adviser firms. If a cheaper AMC is available in the UK, buyers of those funds will look for a similar price elsewhere. The last thing global fund managers need is international arbitrage, especially when there are very nice margins available in some of these other markets.
How will it all pan out? So far, we know that:
- Advisers are currently rarely tempted to change platforms for reductions on a minority of funds.
- Fund managers are influenced by distribution capability rather than size of platform, Neil Woodford’s new fund being a prime example.
- Significant reductions tend to be for mandates run by star fund managers or teams as opposed to the actual fund.
However, looking forward, there is a significant drift to restricted propositions, the biggest example being Sesame Bankhall Group, who have their own asset management business, Optimum.
Industry research has found that asset managers made their preference for restricted propositions when they not only know the level of inflow they can expect, but also the nature. The nature of money is important. A flow of lots and lots of small amounts that stick for years is far better than large sums that move in and out.
This brings us to the issue of discounts and rebates. One fund manager said to us in our research: “If you are talking promised levels of business on specific terms, it is beginning to look like a mandate. Mandates are not offered at a super clean price of 65bps or even 60bps, they are offered at institutional prices which might be more like 35bps”
