Fund groups signed up to Skandia's WealthSelect proposition are holding further talks with the platform after it altered its pricing plans, sparking concerns over margins.
In 2012, the platform signed up ten groups to its WealthSelect proposition, including Artemis, Henderson and Schroders, securing preferential terms on over 20 external funds.
The deals centred on Skandia’s ability to provide flows to the funds from both advisers and its life book in exchange for ‘super clean’ prices.
Funds which made the list have been launched afresh on the platform as Old Mutual Global Investors’ funds, run by the external managers on a sub-advised mandate.
To help promote the funds, Skandia – soon to rebrand as Old Mutual Wealth – originally intended to reduce its own platform fee, but this plan was blocked by the regulator this year after it ruled no cross-subsidisation on price is allowed.
Skandia is now holding further talks with fund groups over its pricing plans and has revealed to them it may cut the overall price of the WealthSelect funds to make them more attractive to customers.
This is a move away from its original plan to make the overall price similar to the existing open architecture platform.
Investment Week understands fund groups are concerned about this alteration to Skandia’s plans, in particular the impact on existing business on the platform, and on deals with rival distributors.
They are worried any price differential at a retail level between WealthSelect and the open architecture platform may prompt a switch into the lower priced mirror funds where they have taken a bigger hit to revenues.
They are also concerned about price contagion, namely that lower priced deals agreed with Skandia will lead to similar demands from competitors.
“They have changed the game somewhat,” one source close to the situation said. “The proposition has been altered, and so there are discussions underway.”
The negotiations cut to the heart of the major issue facing the industry: that is, what level of flows is enough for fund groups to agree to super clean pricing.
Mark Polson, principal of The Lang Cat consultancy, (pictured) said: “Given platforms cannot vary charges to direct flows to their multi-asset portfolios, the only cost variable left is the funds themselves, and that is where pressure is going in this case.
“Asset managers will have to decide whether the predicted flows at even lower margins are worthwhile, and this will add to pressure from other platforms to give similar deals elsewhere.”
A spokesperson for Skandia said: “Our focus is on delivering a high quality investment solution which is priced as competitively as possible for financial advisers and their clients.
“We are in the process of finalising the pricing of the WealthSelect proposition, including the prices of our funds and the associated managed portfolio service. The details will be announced closer to launch in Q1 next year.”
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