Advisers have said they fear being pushed out as asset managers start to roll out ways of improving their services to long-standing ISA and direct clients.
After years of inertia, fund houses have begun taking steps to improve the service they offer to direct clients, either by selling back-books of business to other firms or, in M&G’s case, offering a new online service to 190,000 ‘legacy’ customers.
Both of these moves, however, have attracted criticism from advisers. M&G’s service will see it charge fees equivalent to, or cheaper than, the cost of buying its funds on execution-only platforms. The service is also available to new investors, which has left some concerned.
Dennis Hall, chief executive at Yellowtail Financial Planning, said he could not see the logic in M&G’s new service due to the cost of administering direct clients.
“If M&G can do this, then either its margins are really fat or it is trying to squeeze out the adviser,” he said.
The firm’s plans have not fallen foul of all advisers. Klonowski & Co founder Francis Klonowski said there was “nothing wrong” with M&G offering better prices to customers. But SBN Wealth Management director Dan Farrow said the asset manager would set a disruptive precedent if it began effectively undercutting advisers and platforms.
“[M&G] would be attacking the adviser through to the platforms that have helped it grow… and biting the hand that feeds it.
“The fact it is doing this for new and existing customers, and has carefully pitched its pricing so as not to upset [execution-only platforms], it still runs the risk of upsetting the relationship and trust it has built up with the adviser community.”
Others are upset by some fund houses’ decision to sell their legacy clients to an execution-only platform. Legg Mason, for example, arranged to move 7,000 ISA accounts to Hargreaves Lansdown last month – without the knowledge of the discount brokers who originally established some of these relationships.
Paul Penny, managing director of Financial Discounts Direct (FDD) – one of the firms affected – said Legg Mason’s actions were “morally reprehensible” and cautioned against other fund houses following suit.
Mr Penny said his firm should have been informed and his clients allowed to transfer to Cofunds – FDD’s own platform of choice.
“Legg Mason should have approached us, said they wanted to close the book and given us the opportunity to make arrangements. It shouldn’t have been writing to intermediated clients and actively encouraging their switch to Hargreaves Lansdown.”
Legg Mason said: “This decision is designed to serve our clients’ best interests, enabling them to access and manage their accounts online and benefit from the features of dedicated platform providers.”
An M&G spokesperson said of its plans: “[Intermediaries have] been of long-standing importance to M&G and we continue to strive to support them in the best possible way.”
Former IA boss to weigh in as FCA takes closer look at legacy business
The FCA’s asset management market study is expected to take a closer look at all aspects of fund manager charging – including back-books of business.
The probe took a fresh twist last week with the news that former Investment Association (IA) chief executive Daniel Godfrey (pictured) has been hired by the regulator to assist with policymaking.
The appointment of Mr Godfrey, who is working with the City watchdog on a short-term contract, follows his controversial departure from the IA last year.
The IA, which has appointed Chris Cummings to replace Mr Godfrey, said of its stance on legacy charges: “The industry wants to ensure customers benefit from the best-value share classes.”
