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Steve Young: Forget fund pricing, re-reg is the priority


Investment fund pricing has been shrouded in mystery for too long. The truth is that consumers are paying too much for the very thing that they think they’re buying (and historically too much for things they didn’t know they were buying).

The rather cosy arrangement that investment managers have enjoyed with both fund supermarkets and life insurers has only served to insulate fund management charges from real competition.

The RDR and the dual assault from the FCA and HMRC have opened up a huge can of worms. It is entirely possible that the era of rebates is over and the advent of very cheap index trackers and ETFs will change the competitive landscape forever.

If you start with the consumer then the answer is easy:

  • Investment management should have a clear cost (and I struggle to see why the investor should pay twice for underlying funds).

  • Platforms (if required) should have a clear cost.

  • Tax wrappers should have a clear cost (and as an administrative service, why should this be a percentage charge?)

  • Advice should have a clear cost.

The debate raging over unit rebates versus “super-clean” share classes is an interesting example.

On the one hand, the rebate system potentially offers an easier route to cross platform re-registration but on the other hand, it is difficult to argue that a rebate, taxed in the investors’ hands, is a better, more customer friendly solution.

Some would argue that there should be a level playing field for all platforms. This is has the ring of a nice cosy cartel where the price for investment management is controlled by the platforms.

Even if it is legal (which I doubt), it does not help consumers if competition is prevented from working in their favour.

Surely this is one occasion when the key stakeholders (including the FCA and HMRC) should work together to find a long term workable solution. The key has to be to find a way to make re-registration work even if it involves transfers across different share classes.

With this change, the way will be open for all parties to freely compete (if they wish) on AMCs and platform charges.

For far too long, the financial services industry has lacked the courage to openly charge for the services they offer. Complex charges, discounts, bundling, rebates, lock-ins are all devices which seek the hide the true costs from investors.

The current vogue for restricted networks to offer multi-manager solutions from joint venture vehicles is just another example of the cynical way in which partners in the value chain seek to carve up the value chain in order to enrich themselves.

Surely a network’s role is to enhance the competitiveness of their members by negotiating the best priced products?

I genuinely believe that consumers will pay for advice when they deal with people that they trust. It’s time to charge openly and sell the benefits of the services on offer. Surely it’s not that hard.

 Steve Young is commercial director at Sense


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. If you want to know what a nightmare looks and feels like – just undertake a platform re- reg.

    All these fine words are completely hollow and probably just for the consumption of the regulator. The regulator should be looking at this isnsead of fiddling with rebates etc.

  2. Hi Harry – I know that its currently a pain: the point is that it should become easy as this will keep competitive forces high and prices lower than they would be ordinarily.

    It is in the larger platforms’ interests to make reregistration hard and slow and to throw up lots of reasons why it can’t be done.

    My point is that we all have an interest in working together to solve these problems. Its the customer that really matters in this.


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