Fears the regulator may tighten rules on marketing payments are fuelling fund groups' rush to list on platforms, writes Alasdair Pal...
Measures due to be announced in this month’s platform paper will prevent platforms “from being funded by payments from product providers” from 2014.
Outgoing regulator, the Financial Services Authority, made the decision in its final consultation paper on the issue last year.
This has been widely interpreted as a ban on cash and possibly unit rebates – but the regulator could also tighten rules on payments made by fund houses to list on platforms.
Why fund groups are rushing to list on platforms
Cofunds has warned boutique and international fund houses will face a rush to acquire distribution if the regulator does tighten rules on marketing payments.
Smaller groups often pay platforms for the costs involved in listing a new fund range, including corporate actions and drafting legal agreements.
“If the platform paper bans all commercial deals, it could affect the ability to list,” said Michelle Woodburn, head of fund group relations at Cofunds.
“It’s something that smaller fund groups are only just beginning to talk about. It will be an interesting story.”
The platform is due to list the Carmignac Gestion fund range in the next two months, as well as concluding negotiations with bond giant PIMCO.
“We have negotiations with six fund groups in process, with another 50 banging on the door to get on,” she said.
Listing clean share classes from established players has created backlogs at a number of platforms, which could intensify following a ban on payments other than rebates.
“We have a little bit of catching up to do after launching clean share classes,” Woodburn added. “There has always been demand to get onto the platform... [but this is] the calm before the storm.”
The FSA has already warned large IFA firms over accepting “marketing packages” from fund groups and platforms, ostensibly to run conferences and educational events.
It sent a letter to IFAs on the issue. It said: “We are concerned that some firms may be looking for ways to circumvent the adviser charging rules by soliciting or providing payments that do not look like traditional commission, but are generally intended to achieve the same outcome to secure distribution and have the same ability to unduly influence advice.
“Clearly such arrangements are not in the spirit of the RDR.”
In February, Fidelity FundsNetwork said it had tightened its compliance procedures when supporting IFA conferences.
“We ask the network or national to declare the actual amount they are charging is market rate,” said head of marketing Klare Baldwin. “The regulator is trying to ensure it isn’t commission by another name.”
Cofunds, which has marketing agreements with 36 fund groups, has taken similar steps, Woodburn added.
The wait continues
The FSA is still yet to clarify whether banning payments from product providers will also cover listing payments…
"However, the way in which the consumer currently pays for the platform service hinders transparency and has the potential to negatively affect competition in the market. In line with the changes introduced on adviser charging in the RDR, we do not feel that product providers should be able to ‘buy’ distribution.
"To ensure the consumer is clear on the cost of the platform, we believe the consumer should pay an explicit fee for the platform service, and payments from product providers to platforms should be banned.”
What made financial headlines over the weekend?
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch