Has the Royal Commission overlooked an obvious breach?

The Royal Commission appears to have failed to identify a number of legacy practices which are continuing to negatively impact the culture and ethics of the wealth management industry, according to former dealer group head and current investment committee chairman, Paul Harding-Davis.

In an analysis which will be published by Money Management, Harding-Davis has pointed to the practice of platforms requiring fund managers to gather “pledges” from advisers and licensees before agreeing to add the fund to the platform.

Harding-Davis said that, calling a spade a spade, he believed the practice was unethical, contrary to the sprit of the Future of Financial Advice and inconsistent with the best interest duty.

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Further, he said that while he had personally pointed out the practice to the Australian Securities and Investments Commission there had been no discernible action and the issue appeared to have escaped the attention of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“As a dealer group head and Investment Committee chair, I have always found this requirement offensive at best.  It is also in my view a breach (at least in spirit) of FOFA and the Best Interest Duty,” Harding-Davis said. “Worse, the practice is not just inappropriate but ultimately useless.   The pledges are next to meaningless and cannot have any accountability around them.”

“In addition, it is worth remembering that the platforms charge a shelf space for having each fund on the platform.  These fees can be very large for many platforms. Approximately $25,000 for one of the majors if a manager has two funds on the platform would be an example.”

Harding-Davis said that while he fully understood that there needed to be a due diligence process (particularly for Superannuation to satisfy the trustee) to ensure the robustness of an offering, pledges were not, and should not be connected to the process.

“When, as the chief executive of an Australian Financial Services Licensee (AFSL), I first encountered this concept I wrote to two of the major platforms objecting to them and drawing their attention to the FOFA and ethical concerns,” he said. “It was a pre-Hayne era, but I was still disappointing that I received no response.” 

“I also wrote to ASIC who observed that ‘there are still holdovers from the poor behaviours of the past’,” Harding Davis said. “If they attempted to do anything about, it appears they had no success.”

Harding-Davis said he firmly believed that it was nigh on impossible to make a pledge of an allocation to a product, without having seen a client to assess whether the fund was in their best interests.

“Perhaps a managed account operator who has decided to include the fund or capability may be able to make such a pledge – but an advice giver or their licensee cannot,” he said.

Harding-Davis said that he had some sympathy for fund managers who had to get their products on to platforms and were forced to - apologetically - follow this process.

“I’ve spoken to many – who hate the process and feel it is an embarrassment and inappropriate – but it is the game they have to play,” he said. “If brought into the light it seems clear to me that the process of pledges would not scrutiny. They are a legacy of not thinking in a Best Interest Duty framework.” 

“I gave up trying for a time. Now with the tone of the Royal Commission at last we may be on track to think about other forms of poor behaviour that is not consistent with the interests of the end client.  After all – this one is easy.  No technology or training is required.  Simply a better policy decision.”

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So the solution is that all platforms should have every investment listed on it? A fund manager just then just pays the fee and gets every single fund they have on the platform? That will keep platform fees low for sure...not!!!
I wonder if Coles, Bunnings, KMart, Chemist Warehouse, Dan Murphys and any other business selling a product should ensure they sell every product available, even those ones that get no support?
Is there any co-incidence at all that Mr Harding-Davis now works for a fund manager that obviously would love to automatically be on every platform.
Everyone has their angle!!!

I would agree with Paul that if it was then demanded of the Adviser to place client’s funds pledged that it would be an unethical practice. However, my experience from the few times over 25 plus years that I have pledged to support adding a new fund to a Platform is that the Platform is just basically gauging interest. ie Do they have 1 Adviser interested who might invest a a few Million or 20 Advisers who may invest 30 or 40 Million. It costs to add a fund, maintain a fund and audit a fund. Without some indication of interest in the first place by Advisers that they could see that the new fund may suit the needs of their clients and that the Adviser believes he is likely to support it what is the point on the Platform going to the extra expense as it is the Adviser who assists their clients to decide where the money is invested. When I have requested a new fund to be added I have had no problems with understanding that it needs to be more than just me who is likely to use this fund. I think pledge is ok if it is just being used to gauge possible interest.


Agree Leanne, they are never rock solid pledges anyway, more an expression of interest - and the only reason I''m supporting it is because I think the product will likely be in the Best Interests of my clients. It is actually achieving my BID by getting it onto the platform, contrary to Mr Davis view

Exactly Paul. When I have given a pledge it is simply because I want to be able to put my money, my family's money, my staff's money and my client's money in the fund

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