The sudden outbreak in the media of demands by platforms wanting a super-cheap share class for themselves should take nobody by surprise.
These discussions have been going on for many months, if not years, but have only just surfaced.
Apparently, the bigger players all want a special share class for themselves, and it’s got to be the cheapest available. Evidently, there are going to be an awful lot of disappointed chief executives.
They all want it for their own benefit in order to capture market share, not for the benefit of their customers. Think about the situation that means some platforms get bigger rebates from fund managers than others. Have these enhanced rebates gone to the end investor? Of course not – they’ve gone straight into the pockets of the platforms, some of whom seem to struggle to make money even with this advantage.
And just what level these enhanced rebates are at is shrouded in mystery, as they often aren’t disclosed ‘for commercial reasons’ – proof indeed of who really benefits.
Rebates are almost certain to be dead now, particularly since HM Revenue & Customs pronounced on the taxation implications on the investor, but we await the next version of the platform paper from the Financial Conduct Authority.
Now that this advantage of enhanced rebates is going, the same platforms want some other advantage over the competition. They have focused on share classes to try and lock competition out of the market.
It would be suicidal for fund managers to agree to such favouritism, for a number of reasons.
Firstly, they don’t need to give away margins like this. Open-market platforms simply can’t afford to be without the main players.
Secondly, they will disenfranchise themselves from what is potentially a very large portion of the market, which will be forced to market something else.
Thirdly, they could end up empowering a few dominant players who will just come back and screw them down further at a later point – just look at what has happened to suppliers to the retail supermarket chains who control the profitability of the suppliers.
Fourthly, there would be a significant extra cost involved in running multiple share classes.
Finally, but certainly not least significantly, they would discriminate against the numerous advisers who choose to use one platform against another.
Just to complicate matters further, it isn’t clear whether, if fund managers offer a particular share class, they could block any party from buying that class; such an approach may be deemed anti-competitive. I’m not sure if this has ever been tested, but it’s a big gamble to spend a lot of money only to be told later you can’t actually do what you had planned.
All the indications are that fund managers are going to resist the demands for special treatment from the big players, and it looks like we can all look forward to a level playing field from now on. Some fund managers have made their decision, and it seems nobody has agreed to these demands for special treatment.
