Platform neutrality questioned

New generation platform providers have criticised the ‘preferential programs’ initiated by their peers, claiming they have the potential to bias the advice given to consumers.

As part of some deals, fund managers pay additional fees to platform providers that buy them greater access to advisers via additional marketing and distribution opportunities.

The head of the recently established Hub24 platform, Darren Pettiona (pictured), said preferential deals between certain fund managers and platforms were “fundamentally flawed”.

“What you’re really doing is you’re artificially manipulating an Approved Product List. If someone doesn’t want to pay the price, they might not be given access to your advisers,” Pettiona said.

Examples include BT’s Wrap Advantage and Asgard’s Preferred Partner programs, while Macquarie Bank and Colonial First State claimed not to have any preferential programs in place.

Netwealth’s Investment Wrap platform does offer preferred partner programs to fund managers, selected on the basis of fund ratings and demand, but executive director Matt Heine said the platform does not earn any profit from its preferred menu. Instead, consumers receive a rebate of 10 basis points from preferred partners.

Both Pettiona and Heine agree that any preferential deals with fund managers should result in cost savings to the consumer, rather than profit to the platform.

“If any gains you get from these deals are passed back to the consumer, that’s fine. If you’re using it as a revenue stream, that’s not good,” Pettiona said.

Heine’s concern with some preferential deals is whether they could result in less worthy funds being promoted over others.

“So if you’ve got two funds and one’s better rated and performing better, but then a poorer option is chosen as a result of some sort of an arrangement, that’s not a good outcome,” Heine said.

Heine and Pettiona’s comments come as platform providers lobby hard to convince Treasury that they are product-neutral, acting purely as service providers, rather than entities that can influence the provision of advice.

Treasury’s general manager for the corporations and financial services division, Geoff Miller, said eliminating payments with the potential to create conflicted advice was the focus of the proposed Future of Financial Advice reforms — and that preferential deals between platforms and fund managers weren’t causing much concern.

“They are getting so far removed from the advice that’s actually given to the client, that we feel less [worried] with that type of payment,” Miller said.

Treasury is more concerned with stopping conflicted remuneration methods between platforms and dealer groups and dealer groups and advisers, with further steps to be decided upon consequently.

“We then have to look up the chain above that and ask: ‘Do these sort of payments really matter and have they got any ability to bias the advice coming to the client?’ If the answer is no, then we’re not really concerned about them,” Miller said.