Many execution-only platforms are holding off adding clean share classes ahead of final rules from the FSA which will confirm whether they are able to retain fund manager rebates.
Execution-only platforms were left out of the FSA’s initial consultations on RDR platform rules, which began in March 2010 and focused on whether to ban fund manager rebates and/or cash rebates.
In August 2011, the FSA said that it was “desirable in principle” to ban all payments between providers and platforms but it was not until last June the regulator confirmed execution-only
platforms would be in scope.
The FSA delayed implementing the rules in December amid concerns over the tax treatment of rebates.
Many platforms say they will not consider introducing clean share classes until the FSA confirms new rules in its policy statement expected in the next few months.
Of the 20 largest players in the direct-to-consumer space, over half offer no clean share classes and are arguing that they do not see any need or benefit in doing so.
JP Morgan Asset Management head of UK client solutions and business management Jane Nicholls says: “It is important to get things right for our customers first time, which is why we are awaiting the final FSA rules on platforms before making any changes to the pricing we currently offer to direct investors.”
The Share Centre now offers some 2,500 bundled funds and although it does not have any clean share classes available, sales and marketing director Guy Knight says it wants to have a clean-only proposition in place before the end of 2013.
He says: “We have a programme we are lining up which will mean as we make clean share classes available, customers will be converted into those at the appropriate time.
“But we have to ensure when doing this that we are not creating capital gain.”
Cofunds has a large presence in the direct space and supplies fund administration services for platforms such as Bestinvest, Chelsea Financial Services, ICICI, Saxo Bank and Willis Owen.
Cofunds’ institutional service offers 2,173 clean share classes but none of these firms have taken up this option.
Last year, Axa Elevate launched its white-label proposition Axa Self Investor which has 170 funds available in total but no clean share classes.
Elevate managing director David Thompson says: “Our research found too much choice is overwhelming, which can put many off investing altogether.
“We will continue to review offering clean share classes and expect to transition over the coming months as they become more widely available from fund groups.”
Standard Life Investments is currently considering whether to release clean share classes for non-advised propositions.
An SLI spokeswoman says: “SLI currently does not have any clean share classes in place for direct consumers and will wait to see the outcome of the FSA’s platform policy statement.”
Some direct players, such as Alliance Trust Savings and Charles Stanley Direct, are trying to buck the bundled trend and already operate clean-only propositions.
Charles Stanley Direct launched last week with a clean-only range of 1,400 share classes but the firm anticipates that this will rise over the coming months.
Charles Stanley head of investment Ben Yearsley says: “We have a clear and transparent charging structure in place which is already compliant with the RDR ahead of any rules published by the regulator.”
The Platforum head of new platform channels Jeremy Fawcett says: “Our research shows that price is not the key driver for consumers but for direct platforms there’s a split between those going early with ‘new age’ pricing and the old school rebate models. We are also seeing the ‘landgrab’ play with promotional pricing for 2013.”
The Lang Cat principal Mark Polson says: “The revenue model is dependent on making the platform appear free through rebates and bundled share classes and while they can continue to do this they will not add clean funds.
“I think it is in the best interests of consumers to have clean available as early as possible.”