With the combination of a prominent focus on fees-for-no-service in the Royal Commission and the questions raised about platform fees in ASIC’s RG97 review, is it time to consider whether shelf-space fees will soon be targeted under the same umbrella?
Shelf-space fees in investment platforms are broadly analogous to the practice of grocers charging manufacturers to have their products available on grocery shelves. In this case, though, manufacturers are generally fund managers looking to have their products listed on platforms’ investment menus.
Existing regulation
Under ASIC’s RG246, volume-based shelf-space fees are prohibited, but the Commission recently exposed instances where these sorts of fees were “disguised” as reporting and administration costs.
Before the Commission, were you aware of these fees? Despite ASIC’s ban, you have a right to know about anything that would bias your clients’ decision-making process, so don’t be afraid to ask any platform you use whether these fees still exist in some form.
And as we’ve discussed before, disclosures by investment platforms was one of the more complex issues to arise in ASIC’s review of the RG97 regime. The reason for this is that there are effectively two layers of costs involved: those charged by the platform itself and those by the underlying investments accessed through the platform.
What the Commission says
As per the Commission’s interim report, “the charging of platform fees evoked comparisons with fees for no service because the default setting seemed too often to be ‘set and forget.’”
Hayne’s report continues, adding that charging platform fees results in comparisons “with inappropriate advice because, very often, the platform that an adviser recommended the client use was a platform provided by an entity associated with the licensee with which the adviser was aligned or by which the adviser was employed and the arrangements were allowed to stay in operation despite the platform not remaining cost-competitive.
“Both the practice of ‘set and forget’ and the ways in which fees for, and services provided by, platforms could remain unaltered over time show that customers using platform services exert little or no effective competitive pressure on platform operators.”
It’s difficult to determine what the Commission’s final recommendations will be at this stage, but it’s clear how platforms pass on costs to clients will be a focal area.
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