Graham Dow, head of investment group relationships at Standard Life, questions the extent of platform transparency.
One area of recent change I am particularly interested in is the now transparent fund deals. As you might imagine, this is an area that has caused me many sleepless nights over the last 12 months. Up to now, you could argue we were all posturing under shrouds of secrecy – each platform convinced it was getting the best deals and was secretly the “most favoured” of the bunch.
Transparency brings full visibility for the customer and the adviser, and clarity to me of how other platforms have negotiated their positions.
The fund deals have not been negotiated purely on scale – that is backward looking and not taking into account how those assets were actually gathered. Similarly, it does not consider the potential for asset gathering in the future. It is an investment being made by the fund groups in the platforms they believe will be the winners in the future.
Comment: Are you really getting a good platform deal?
A couple of broad themes came through in the negotiating process that I thought were really interesting.
There has been a long-held view that if you have a very large “one off” investment you might be able to command a very competitive fund deal – perhaps better than a traditional platform. However, as the market has matured, there is now recognition that it is not the size of the assets that necessarily counts, but the length of time they will be invested.
The clever analogy is: are you “buying” units or merely “renting” them? If you are only investing for a period of say 18 months, it is fair to say you are only “renting” the units and, for that, you should rightly be paying a premium. With the development of model portfolios or packaged fund solutions, a high turnover of assets is regular.
The “stickier” platform assets deserve a reward for the longevity of its investment – they traditionally “buy” units and hold them for a longer term. Economically, this is better for the fund group and gives greater stability in the fund – so rewards are due. We are seeing this thinking develop which is encouraging.
A key tenet of the Retail Distribution Review is transparency and we are beginning to see the various deals all the platforms have negotiated. But are we actually seeing everything? We are seeing the deal new investors will get – but what about existing customers?
Transparency does not extend to them but I would not be surprised at all if some advertised fund deals are being subsidised by the back book – or the existing loyal customers.
This is because many deals are negotiated on a tiered basis – as different asset levels are achieved, a new lower charge is levied by the fund group. The platform has the choice of rewarding all customers with a deal similar to a weighted average. Alternatively, it can ring-fence the worse terms for existing customers and advertise a seemingly better term for new.
This is like the bank that offers more attractive interest rates for new customers – the customers who have remained loyal rightly feel put out. There is also a TCF question – is it right that the assets of one customer in the same fund on the same platform be used to subsidise the fund deal for a future customer? It doesn’t feel right which means it probably isn’t.
But of course, none of this is transparent – which means that, although we have changed, we haven’t really changed.
Maybe we are too scared to change that much?
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