Does Hargreaves have an edge in the share class war?

Michael Trudeau

Do advisory platforms suffer a disadvantage when it comes to negotiating for preferential rates with fund groups? I’ve had a number of interesting discussions with platforms this week which make me wonder.

Ian Gorham of Hargreaves Lansdown in particular told me that because it offers funds direct to advisers, and because it is able to ‘recommend’ funds simply on the basis of returns minus costs, it has more sway to get deals done.

Earlier this month in its interim results the firm revealed that close to 70 per cent of the 98 funds remaining on its Wealth 150 list will offer a cheaper bespoke share class - and that the rest would likely fall in line. To be exact, 67 funds had agreed special deals.

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Mr Gorham said: “We do have more control than an advisory platform. An advisory platform will find it difficult to get discounts... their ability to get them is limited or none because the adviser decides where to put their funds.”

On the advisory side of the divide we had confirmation today on the ‘superclean’ deals struck by Standard Life. It had planned to announce deals with 15 fund groups this month; tomorrow it will confirm the names of the seven it has managed to secure terms with.

Now I don’t want to slate Standard Life, there could me myriad reasons for the remaining fund groups to delay finalising these special rates. According to Graham Dow, head of investment group relations, four more fund groups have agreed to preferential rates but aren’t yet prepared to go public just yet.

It could look from the outside like Standard Life falling short of its target in the time frame set is an example of an advisory platform having to work a lot harder to secure ‘superclean’ rates than direct-to-consumer Hargreaves.

On the other hand these deals represent more than 200 individual funds. What will be key is the extent of the bargains and whether the remaining firms will sign on. Mr Dow said the firm is confident it will get the others by the end of the year and that more will follow in 2014.

Barry Neilson of Nucleus raised an interesting point which gave rise to this line of questioning: he claims negotiating a superclean deal carries a risk of creating a conflict of interest.

“If you’re a fund group you’re only going to be willing to offer access to superclean share classes to a platform that can deliver you volume. Why would you reduce your price if you weren’t going to get volume in return?

“If you are predominently an intermediated platform where the IFA has got a responsibility in every instance to do what’s right for the client, then how can the platform really influence volume? That would suggest that they are doing it in a manner that has the potential to bias the advice.”

Mr Dow very clearly denied that volume had any space on the negotiation table, and Ian Gorham echoed that by pointing out that volume override agreements have been prohibited for a long time. There goes that theory.