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November 24, 2013 1:40 am
Hargreaves Lansdown, the online supermarket for funds and shares, is playing hardball on pricing with asset managers that want their products included on its influential buy list.
Hargreaves, the third-largest UK fund platform, with assets of £37bn, is demanding asset managers cut their fees for products that might feature in an updated version of its widely followed Wealth 150 list.
“We heard that one leading fund manager was told that it would have to drop its pricing by 30 per cent even to be considered for inclusion,” said an executive at a rival platform.
Danny Cox, head of financial planning at Hargreaves Lansdown, said: “Yes, we are playing hardball with regard to pricing. Every basis point of savings will be passed on to the investor.”
The tough stance threatens fund managers’ profits, with rival platform operators also seeking price cuts.
Fund platforms are an increasingly important part of the chain between asset managers and investors in the UK, accounting for almost half of all sales to retail clients so far this year.
Pricing is changing as a result of the Retail Distribution Review. RDR banned online fund platforms from receiving payments (rebates) from fund managers from next April.
Investment managers face a dilemma in deciding whether to accept Hargreaves’s terms. They fear that offering cheaper share classes to one distributor will lead others to demand similar deals.
One unhappy fund manager said: “How is an investor to know if these funds are any good or just cheap if Hargreaves is only prepared to market those funds on which it has been given a deal.”
But some are understood to have agreed to so-called “superclean” fees of 50 basis points for equity funds and less for bond funds with Hargreaves.
Holly Mackay, managing director of the Platforum, a data consultancy, said fund managers could see revenues from the UK retail channel fall 15-20 per cent over the next three years.
“Large players with customer clout, such as Hargreaves, will secure aggressive pricing from many managers,” said Ms Mackay.
Asset managers could face further pressure from institutional clients if Hargreaves drives retail prices below current charging levels for institutional share classes.
Managers that have big sales in markets such as Luxembourg or Germany could also face further problems if overseas clients demand comparable fee cuts.
Mark Till, head of personal investing at Fidelity Worldwide Investment, which plans to spend £250m across its UK platform business over the next five years, said fund pricing “needs to be competitive” but it was even more important that investors should receive appropriate guidance to help them choose the right fund.
Stephen Wynne-Jones, spokesman for Cofunds said “Most of our clients select funds from the whole market so we work with fund groups to ensure we get the lowest possible prices. But we don’t believe it’s our role to restrict choice or push our clients into a particular fund solution – that’s not in the spirit of RDR”.
The updated Wealth 150 list is expected to be published in December.
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