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Clean share classes: What the execution-only platforms are offering

Standard Life 480
Standard Life Investments does not currently offer clean share classes for direct business

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.”

Clean share classes direct platforms

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Ross Glanfield FPFS 8th February 2013 at 12:51 pm

    This survey highlights the fact that most platforms have absolutely no interest in divulging the murky extent of rebates, retrocessions and marketing allowances that they demand from fund managers to hold funds on their platform. The self-justification in the reasoning for maintaining the smoke and mirrors should be a warning to investors that these platforms are probably not sustainable without the backdoor fees

  2. Consumers are focussed on price !! Surely if they are going direct its because they are price sensitive, not only for the cost of advice but also the initial and on going charges. We’re told that price and transparency is all important but from what I can see, prices in the bundled world will still be opaque. So much for applying RDR principles…. Do away with rebates and the tax problem disappears. Simple !

  3. Its a joke that an IFA has to use clean share classes (and in many cases is unable to use certain funds as they dont have a clean share class) and charge an explicit fee; whereas an execution only service, with none of the regulatory burdens, can continue to rake in commission.

  4. Perhaps I am missing the point but I think this article is excellent news for advisers.

    “Mr Potential Customer”, would you rather pay an additional 0.5% AMC for execution only without advice or £x / y% for our full advice service”.

    I’m not a big fan of several aspects of RDR but, blimey, this gift horse looks better than a FIndus lasagne!

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