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Fears for tiers in fee change

Cofunds has ruffled a few feathers in the investment management industry with increases in charges for fund firms.

The move, which will come into effect from January next year, means all fund companies will pay more but smaller funds look to set to bear the brunt of the new charging plan.

The existing structure means all firms pay a similar amount regardless of asset size and sales but the new system will take both these criteria into account with the charges calculated from a company’s back-book of business on the platform as of December 31 and new sales from the beginning of the year.

The platform says the increase is its first since launching in 2001 and will be in place for at least three years.

The changes will not please smaller firms as funds will be placed into four tiers based on higher sales meaning lower fees. The highest fee will be an add-on of five basis points and Cofunds has yet to reveal what price firms at the top of the fund tree by assets will pay – the likes of Invesco Perpetual, M&G and Fidelity.

Research from Financial Express puts the plans into context. In February , 23 of the leading 50 fund firms had more than 10 funds under £50m. Figures show that across all IMA sectors there are a total of 1,215 funds under £50m.

According to some industry sources, the change could mean that a fund would have to be in the region of £40m before it became profitable on Cofunds.

The news comes as Fidelity FundsNetwork is linking annual fees to the amount of servicing required to encourage firms to provide up-to-date information. It is also introducing a corporate action charge for mergers, name changes or AMC charges, something Cofunds already includes in its pricing.

T Bailey fund manager Jason Britton says: “Our understanding is that the regulator is keen to ensure IFAs using a preferred platform do not, as a result of that platform, rule out some fund groups. It is important that IFAs continue to be whole of market and if platform pricing were to move to a basis that adversely affected boutique fund groups, that could cause a problem for advisers. I doubt that would be Cofunds’ intention.”

Premier Asset Management chief executive Simon Weldon says no one will welcome Cofunds’ price increase, particularly with funds under management and revenues are down.

He says: “It is difficult for the smaller groups to see exactly what they are getting for the additional costs. That said, Cofunds is moving ahead with some good ideas which, if delivered over the next year or two, will broaden its distribution channel and provide access to a significantly bigger pool of assets.

“The pressure is on Cofunds to deliver something to everyone and not disenfranchise the smaller boutiques who, by their very nature, provide the non-vanilla flavouring to portfolios. It is a case of waiting to see how it develops.”

Skerritt Consultants head of investments Andrew Merricks says: “If it has charges based on popularity, it would be like introducing a herd mentality, which is nearly always the wrong attitude. If it is big and popular, I tend to go elsewhere.

“If funds get additional charges because they are small, not in vogue or do not have superstar managers, you would have to expect the charge to be passed on to the client at some point.”

One of the big concerns facing advisers is that a number of these smaller fund firms will vote with their feet. Informed Choice managing director Martin Bamford says: “There is always going to be an element of commerciality between the fund managers and the platforms. The worst scenario is that the providers leave, which will make life difficult for advisers.

“It also highlights the wider issue of the lack of transparency between fund managers and platforms. We need to see transparency as to who gets paid what.”

Hargreaves Lansdown investment manager Ben Yearsley says: “It looks like they are trying to justify the higher fees, but they have a good service and if they can justify it that is fine. It would be a shame for some of the smaller groups who have been on Cofunds for some time as they may have to take their assets off. It would also be difficult for those who offer trackers and lower-cost funds who have smaller margins to play with.”

A number of fund firms expressed concerns about the pricing changes but did not want to be named.

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