It was only about five weeks ago I wrote about the likely impact of the enforcement of income tax due on rebates paid to clients, which had been confirmed in the March Budget. I also speculated about the changes which might be introduced by the platform paper PS13/1.
It seems I was about right, and the industry is now struggling with the tax and even more with the implications for share classes and direct platforms.
Closer to home, we all want to know how fund pricing will settle down for advised platforms. The race is on to ensure all clean share classes (those which carry neither commission for advisers nor standard rebate for platforms) are available on platforms, which are regularly competing in the press about who has the greatest number. It is still early days, but this is how I see things developing.
The standard share class (typically 75 basis points annual management charge) will be available to all clients through direct and advised platforms. Fund managers so far seem robust in assuring that new bespoke ‘super-clean’ share classes will not be introduced for the big beasts of the platform world.
They certainly recognise the problems for re-registration that any proliferation of bespoke super-clean share classes would create. Having said that, we also know that research or ‘guidance’ provided by a platform can channel client and adviser selection on a few managers and just a few funds – expect to see the emergence of ‘super deals’.
So what would then happen to the transfer of a client to another platform without the same deal? Well, presumably the client would lose access to that share class and have to pay more for the fund. That means that other benefits (independence, quality of service and advice) will have to outweigh the benefit of the better fund price.
The debate therefore turns to the premium an adviser (or client) can justify for the ability to select any fund at any time, i.e. open market. If that premium becomes too great, the consequence will be the steady growth of restricted business and restricted advisers, and the continued contraction of the whole-of-market sector.
Of course, the independent platforms and advisers will fight that all the way. The risk is that, in the end, money does talk. Access to a wider choice of funds will struggle to justify a substantial additional cost. Interestingly, the playing field becomes level again for passive funds, as they are less likely to be discounted substantially, so smaller platforms will compete on an equal basis.
The confirmation that fund managers which also own platforms can’t subsidise the cost was welcome. The RDR has been consistent that the client must know who is being paid for what so that conflicts of interest are fully understood.
Other speculation revolves around the likely impact of PS13/1 on the direct market. The first-quarter results from Hargreaves certainly seem to support previous predictions that the RDR will drive business to the direct channel.
Other competing direct B2C propositions are being launched on a regular basis. So far none has had a noticeable impact. It remains to be seen how the rest of the industry manage to respond to prevent it becoming a ‘walkover’ for the national champion from Bristol.
Hugo Thorman is chief executive at Ascentric
