Fund groups will demand sales in return for cut price funds

Asset managers will demand promises about the scale of expected fund sales in return for discounted prices, according to the authors of new research.

International Financial Data Services (IFDS), which provides outsourced back office facilities for fund groups and platforms, and CWC Research, have produced a research paper which predicts a price war among active managers as platforms battle for the best terms.

Clive Waller, managing director at CWC Research, said: “A couple of asset managers have shown their hand in terms of the clean price they will offer, the lowest so far being 55 basis points.

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“Asset managers will want a bang for their discounted buck in the form of promised fund flows, which could mean a drift to restricted propositions and vertically integrated firms.”

Standard Life Wrap has already stated it has reached agreements with several fund groups about reduced price access to funds for the platform’s customers although the cost is not yet known.

Hargreaves Lansdown has also clearly expressed its desire to have the cheapest fund share classes but it has not yet revealed its hand either.

In terms of fund groups, the largest asset manager to outline plans for cheaper funds so far is Investec Asset Management, which has said it will launch 65 basis point share classes for selected distributors.

The research used interviews with major platforms, fund managers, data publishing houses, adviser businesses and discretionary managers to reach itc conclusions.

The research showed two thirds of asset managers who would consider launching discounted shares were “attracted to restricted propositions” and half would “look for influence over distribution”.

“We will only offer better terms to distributors who can influence the delivery of funds,” one asset manager told researchers.

“Most platforms cannot influence fund flows so will not be offered discounts.”

However, 62 per cent of platform managers said they anticipated a “reduction in the price of funds”.

One platform told researchers it expected “the very best deals in the marketplace and parity against our platform rivals”.

“If we do not receive them from asset managers, as a last resort we may consider their removal from the platform.”

Mr Waller said a race to the bottom in terms of fund pricing was now “likely”.

“Once a company has offered a deal to someone then somebody else will ask for it,” he said.

“A network like Sesame can forecast distribution. Major networks will go restricted because they have to and will make promises.”

David Moffat, group executive at IFDS, said he thought many groups would only produce cut price shares on their ‘second-tier funds’.

“It is not the top tier funds except for Investec,” he said. “It is the second tier funds - the funds that sell but not the standout most sellable funds.

“People are trying to do this to stir up interest in second tier funds. But it can cause ructions internally because it is saying one fund manager is less value than another.”