FCA confronts David and Goliath battle on fund pricing

Smaller platforms are struggling to compete with larger counterparts over fund prices because of the latter’s ability to negotiate discounts with asset managers, the Financial Conduct Authority (FCA) has warned.

The watchdog’s interim platforms market study, published today, found commercial practices employed by certain platforms are negatively effecting asset managers’ ability to offer fund discounts to platforms of all sizes.

It found discounts were concentrated on larger platforms, with a small number having arrangements to secure the ‘best or no worse price’ from asset managers, making it harder for smaller platforms to compete.

The FCA said discounts across all funds available on platforms ranged from one to 50 basis points (bps). Among the largest 100 funds available on platforms, 33% have no discounts on any platforms, while the average discount is about 8bps with a maximum of 38bps.

It said: “To some extent, this is to be expected. Asset managers would rather offer discounts to larger platforms capable of attracting larger flows into their funds. Beyond this, however, we have observed arrangements between a small number of platforms and asset managers which could affect pricing of funds on other platforms.

“Under the arrangements asset managers offer these platforms the cheapest price in the market or prices no worse than on other platforms. This means that in principle fund managers may lack incentives to offer discounts to firms without these arrangements.”


The FCA identified the following arrangements in use for securing discounts:

  • Explicit contractual clauses requiring that fund prices be no higher than on comparable platforms;
  • Schemes to offer benefits to asset managers in return for funds not being more expensive than on other platforms;
  • Expectations that discounts would be exclusive where secured as part of a negotiation without a contractual obligation;
  • Time limited exclusive discounts in return for marketing new funds.

It said: “In principle, arrangements like these could disincentivise fund managers from offering lower fund fees on other platforms, due to the wider impact on revenues that such an offer would have if the price also had to be reduced on a larger platform benefiting from such an arrangement.”

Platform fee versus discount

Mike Barratt, consulting director at the Lang Cat, said a discount for the end client feels like a good thing and platforms do have a role to negotiate a lower charge from the asset managers. But the 8bps average discount is not great and particularly when the platforms which have those discounts are typically those with higher charges than average.

He said: “On the direct side, Hargreaves Lansdown have most of the discounts, they have a 40% market share so they get the biggest level of discounts. But their platform price is 20bps more than AJ Bell, for example. If you’re getting a discounted fund at 8bps but you’re paying 20bps more for the platform charge, you’re better off going elsewhere and paying a lower platform fee.”

Role of platforms and advisers

The FCA said that competition between asset managers could be strengthened if platforms improved the presentation of fund charges to consumers and advisers at relevant points in the consumer journey.

It also noted that only a small minority of advisers negotiated fund charges with asset managers and more than half of those that gave a reason for not negotiating said that they rely on platforms to do so.

However, it added that this reliance on platforms is likely to be misplaced as only three adviser platforms that said that they successfully negotiate discounts with fund managers.

“With the exception of existing discounts being applied to new platforms acquired in mergers and acquisitions we do not see large numbers of recent discounts on adviser platforms,” it added.


Andrew Glessing, head of regulation at Alpha FMC, said it is “unsurprising” the FCA has chosen the review whether consumers are getting full freedom of consistent choice across a range of platforms, not only in terms of price and value for money but also in terms of service, hence one of the other areas of interest for them is the ease of switching between platforms.

“It is an FCA construct that wants to see consumers being able to switch easily between platforms small and large and the competitive terms asset managers may be able to offer flowing through that broader community,” he added.

Setting a trend

Earlier this month, Architas announced it was extending superclean share classes to all UK platforms in a move expected to shift the competitive advantage held by large players in the market.

Frank Potaczek, head of UK proposition at Architas, said: “We believe this move simplifies the situation for advisers who are switching clients between platforms or using multiple platforms as part of their investment proposition.

“Having consistent pricing removes any additional costs faced by advisers that wish to switch platforms and remain invested in Architas funds.”

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