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‘Dilemma for advisers’ as fund managers and platforms clash

Fund managers and platforms have clashed over the decision by some fund groups not to launch clean share classes until April 2016, with platforms arguing their refusal over clean pricing creates a “dilemma for advisers”.

The FCA confirmed in April all legacy payments on past business between fund managers and platforms will be banned from April 2016, following a two-year sunset clause from April 2014 to allow firms to transition their business.

Platforms including Novia, Standard Life, and Alliance Trust Savings have said they will move exclusively to clean pricing within the next year. But they have come up against fund groups such as HSBC, Architas and Neptune which do not plan to launch clean share prices on all of their funds until they have to.

Standard Life estimates there will be no clean share class for around 1 per cent of its platform assets but says it will work with advisers to resolve issues as they occur.

Standard Life head of investment group relations Graham Dow says: “We are obviously disappointed that some fund groups have decided not to offer clean share classes for a handful of their funds.

“This is often because the fund group has decided to run down the fund and does not want to incur the cost of launching a new share class.”

Novia sales director Paul Boston says: “Where asset managers are not launching a clean share price it can create a dilemma for platforms and advisers. We believe competition will have the desired effect on fund managers who may have seen this as an opportunistic time to increase costs or those that are not launching clean share classes.”

Alliance Trust has already converted around 40 per cent of assets. It offers investors the option to trade into an alternative investment free of its normal dealing charges where the existing bundled price is not matched by an equivalent clean option.

A spokesman for HSBC Asset Management has defended its decision not to launch clean share classes across all funds and says the bank is still deciding its approach to the April 2016 deadline.

He says: “We will not launch clean share classes on funds where we do not plan to actively distribute or market to intermediaries going forward as we do not anticipate, nor plan to encourage, demand.

“The most likely scenario is we reduce the charge of the existing share class by an amount similar to that of the platform rebate, which would bring it in line with a clean fee share class. There is also the option to launch clean fee share classes at short notice, which we would do if we considered there was sufficient demand at the time.” 

A spokesman for Neptune says while it has launched clean share classes, these are not available across the entire fund range. It admits that on some funds, the current pricing appears higher than the bundled share class.

On the Neptune Africa Fund, for example, the lowest available share class has an annual management charge of 1.35 per cent, while the the bundled share class was priced at 0.925 per cent. Neptune says this reflected a rebate, and the full retail AMC was 1.85 per cent.

The spokesman says: ”In some instances we recognise pre-emptive actions to forthcoming regulatory changes have resulted in a de facto increase in a fund’s gross AMC and therefore an increase in the cost of investing as represented by the total expense ratio.

“However, it is misleading to state Neptune has ’increased the price’ or imply we are using changes in the distribution marketplace cynically to increase our fees; indeed, on our smaller funds, we have chosen to absorb some of the costs ourselves by capping the TER.”

Architas also has no plans to launch clean share classes on four of its funds until the deadline. A spokesman says this relates to distribution channels that are no longer open. He says: “We will continue to review the charging structure of these funds, in light of recent regulatory changes, and ahead of the implementation deadline in April 2016.”

He adds the core range of 20 Architas funds have had clean share classes since last year.

A Money Marketing investigation earlier this month led JP Morgan Asset Management and Aviva to say they would review clean share prices on some funds where the AMC was 25 basis point more expensive than the bundled price.

The FCA has already confirmed clients will have to be notified before any bulk conversion. It says: “If a client is in any way disadvantaged by such a conversion, we would not expect that conversion to take place.”

The Lang Cat principal Mark Polson says: “If there is one element of the sector which does not need to increase remuneration it is the fund management piece.

“I respect fund managers’ right to have very comfortable offices but I do not think it is unreasonable to expect them to shoulder some of the cost of converting to clean share classes or at least avoid causing client detriment.” 

Jacksons Wealth Management managing director Pete Matthew says: “It all smacks to me of fund managers putting themselves first instead of the client. I cannot stand stuff like this. It does not matter who the fund manager is, if a company takes liberties they will not be in business for that long.”

Clear IFA director Howard Bullock says: “A move to clean is preferable but if fund groups decide not to launch a clean price then that is a commercial decision. Advisers will have to look at it and where there are two competing funds and one offers clean and the other does not there will have to be a pretty compelling reason to stay with the bundled class.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Architas launched clean share classes on its core risk rated fund range over a year ago….. I assume this refers only to some of their non core funds which frankly don’t take any money anyway and therefore some platforms are reluctant to add them.. a bit of a non event…

  2. The American retirement savings market was keenly disrupted by requirements to let people know about ETFs with their charges in the region of 5 and 10 BPS for some of the larger diversified bond and equity funds.

    In America they don’t ave a cap, but rather rely on improved disclosure and then the actors and the market to evolve.

    I wonder how the UK market will develop: for now I see people dragging their feet and complaining about changes in a Canute-ish way. I can see people giggling about these arguments in a decade, when almost no charges will be larger than 15 bps for passively run bond and equity funds, and they may be a material share of the market by then as well!!!

  3. Yet again we have an obsession with the wood instead of the trees.

    The start should be – what is the fund? What is it invested in (which companies etc.)? What is the record of the fund? What’s the fund management like? The culture of the firm. The financial stability of the firm. What is the stock turnover? The volatility? The risk control of the fund and its overall risk profile?

    Then perhaps we can look at clean shares and costs. What’s the point of buying a clean cheap fund that’s duff? This looks to me like another of these fatuous research firms trying to drum up business.

  4. Test comment – please ignore

  5. I really dont know why the vast majority of bloggers on here simply dont do all their work for their clients for free, or at 25/50% less now than 5 years ago. All these bleeters yapping about the fund groups making money. SO WHAT???? That is what they are there for – They have a fiduciary duties in that regard. Its really simple We try to get clients better returns than they are likely to get long term on deposit. Forgetting about our selling charge, the product and funds we recommend to attempt this strategy, cost to do this. If the bleeters who agree with the sell it cheap and stack it high is best for their client, so be it – dont use the other funds but for God’s sake stop saying the fund manager industry should take the hit on this. You should take a hit aswell by reduced sales charge and give your clients better (more expensive funds) – The total cost to the client is the same but they have better chance of meeting the objective. If you are not willing to take this action, then I respectfully suggest you STFU.

  6. I have yet to see a material client saving across c 50 funds that we use. The cost of unbundling to us and the industry has been horrendous. But ultimately who picks up the tab? O yes the very clients this “initiative” is supposed to help. What a joke – real own goal FCA!

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