European investment platforms are seeking to replace rebates with explicit fees to fund managers, a new report says.
The development is challenging existing business models significantly says London research consultancy Platforum. Research director Richard Bradley says that under the existing continental rebate model, there is little apportioning of platform charges across the value chain.
He notes that asset managers get ‘distribution’ and advisers, wealth managers and banks get access to investments.
Yet he adds: “All the fees come from the same bucket, so there’s little need to state the explicit value exchange that each party makes with the intermediary platform.”
He says this is significantly different from the UK where a clean share classes are more or less ubiquitous, but that is because of regulatory action where platforms are not allowed to charge asset managers. As a result the commercial models are very different.
The Platforum research “European Fund Distribution: Platforms” finds that platforms across Europe are trying to replace rebates with explicit fees to asset managers, charged on top of clean share classes.
Bradley finds that leading asset managers are now questioning exactly what they get for the fees they pay.
He says that platforms are now “falling over themselves” to evidence the service they provide to the asset managers. This has led to a spate of platforms launching data services in recent months.
Bradley adds: “Asset managers’ charges are ultimately on an annual percentage of assets. If the service for which platforms charge asset managers is ‘distribution’, then platforms will need to articulate clearly what the asset managers can expect to get in return – especially in terms of fund sales”.
He also notes that European platforms don’t provide asset managers with ‘shelf space’ but instead merely provide the potential to distribute.
Platforum says it expects asset managers to become a bit more choosy when deciding which of their products to list on the various platforms.
Bradley adds that it is difficult to envisage the same share classes becoming available rebate-free in the UK but subject to platform rebates on the Continent and UK asset managers will be very reluctant to absorb an additional 10bps for continental distribution.
