Distribution demands show dirty side of ‘superclean’

Michael Trudeau and Ashley Wassall

The increasingly murky waters around clean and so-called ‘superclean’ share classes were muddied considerably further this week, following a report which claimed fund groups are likely to demand sales volume in order to acquiesce to preferential pricing deals.

FTAdviser sister title Investment Adviser revealed the findings of research carried out by International Financial Data Services and CWC Research, which found that asset managers were eschewing deals with platforms in favour of restricted advisers in order to secure “influence” over sales.

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

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One fund manager told the researchers his firm would “only offer better terms to distributors who can influence the delivery of funds”, while another said most platforms “cannot influence fund flows so will not be offered discounts”.

The story prompted a storm of debate on Twitter, with a conversation responding to the paper continuing for two days and seeing industry insiders reveal further details of the dirty deals managers are seeking before agreeing to preferential ‘superclean’ arrangements.

Phil Young, managing director of support services firm Threesixty, said he had been offered cash by a fund manager in return for a “guaranteed panel position” in the past, adding that the practice continues and that payments are often disguised as “a marketing package” to avoid drawing the ire of the regulator.

Mr Young added that some restricted adviser firms had even stopped waiting to be offered an incentive and were effectively drawing up “rate cards”.

Risk profiling specialist Finametrica’s managing director Paul Resnik waded in by saying the deals go “fundamentally against the intent of recent legislation [and are] detrimental to good advice”, while advisory sector consultant Phil Billingham stated the deals represented the “last desperate throws of the dice” for active managers.

Clive Waller, managing director of CWC Research, said the Financial Conduct Authority had no issue with restricted models and in fact was encouraging them by setting “immense barriers” to independence. He added that the market was “moving towards commoditisation” and “a lookalike high street”.

There is nothing super or clean about this. It’s a jaw-droppingly cynical move on behalf of fund groups who are in many cases already holding investors ransom with higher rates.

If true, it would so flagrantly contradict the spirit of the Financial Conduct Authority’s clean share class rules that it would be far and away the most shocking development in what has been a process already riddled with shady self-serving.

Advisers joined in the Twitter discussion to say the move to restricted tied models to secure distribution would alienate many of their clients, particularly at the higher end of the market, while others suggested the model could be effective for mass affluents if it drove down rates more broadly.

Keep your views coming as this story is going to run and run.

Hearing your complaints

It’s easy to emphasise the pessimistic news, but this week was a pretty good one in the war between advisers and claims management companies.