The new approach to conflicted remuneration outlined in the Australian Securities and Investments Commission's (ASIC's) RG246 guidance will drive vertical integration in the platform space, according to Tria Investment Partners.
The ban on volume-based shelf-space paid by fund managers to platform operators appears to have "tightened considerably" when compared with the original guidance, Tria managing director Andrew Baker writes in the latest Trialogue update.
"The concept of bargaining power has disappeared in RG246, replaced by exemptions for "fees-for-services" from the platform to fund manager, and "scale efficiencies" derived by the fund manager from the volume delivered by the platform," Mr Baker said.
Qualifying, however, involves jumping through quite a few hoops in both cases.
ASIC expects the fee-for-service exemption (covering platform activities such as listing, monitoring, and reporting) to be largely fixed or to vary with the number of funds, rather than growing with assets under management. Given that ASIC is likely to compare this fee across platforms, the charge will likely need to be a fixed dollar amount rather than one determined by basis points, he said.
A basis points-based fee can more likely operate under the scale efficiencies exemption but ASIC's evidentiary requirements here are "extraordinary", Mr Baker said. These include fund managers laying out their fixed and variable costs to platforms in order to justify the scale efficiencies achieved.
Platforms would also need to secure a separate expert opinion about the fund manager's scale efficiencies statement.
Mr Baker said the measures are "exceptional in a world where real estate and stockbroker commissions survive, and where payments from consumer goods manufacturers to supermarkets for physical shelf-space remain commonplace".
The new guidance represents "another turn of the screw on the platform business model", he added.
Mr Baker said the easiest way for a platform to respond is to vertically integrate.
"Profit margins may get trapped at different parts of the value chain, but if you own the whole value chain, you don't really care. So, just as [the Future of Financial Advice reforms] encouraged vertical integration of advice, RG246 may encourage further vertical integration of asset management."
