Cofunds: FSA rebate rules will confuse clients and drive up costs

I agree with Alastair, surely it is full disclosure that is the issue, and the fact that the platforms are negotiating deals which benefit clients is a postive thing.

I explain to all client that on a typical 1.5% AMC unti trust 0.5% is paid to me towards review costs with the remaining 1% split between the Fund Manager and Cofunds typically as a 0.75/0.25 split.

if the proposed 'unbundling' means the overall cost to the client is going to rise then where is the benefit in that?

Full disclosure is a great thing, as value for money can then be demonstrated, but if banning rebates will actually end up costing the clients more then it makes no sense.

Knowing exactly what is paid to whom is never confusing.

The bleating from Cofunds and Skandia is to be expected, they are just defending their business model.

This is an interesting case study from the point of view of the small IFA: who is stronger, the monolithic FSA or the monolithic platforms.

I've not been paying a lot of attention - but Fidelity Funds Network don't seem to be making a huge song and dance about all this. I wonder why?

I have a history of arguing with these platforms as I believe they hide the rebates so they add to their profits. Try to get them to pass the discounts on to clients and they never make it simple. I take 0.5% fund based commission even where the amount paid is 0.75%. None of these platforms seem capable or willing to pass on this discount to the client so I steer clear of them. I don't agree with the FSA on many things but hope they at last show some common sense on something.

Some people are just too stupid to realise it.

Although they were probably the same people who shouted on about qualifications then cried when a bank became chartered.

Transparency is better because when the client pays more for the same product they will at least know where the extra payment has gone!!

Competition in fund charging will be a thing of the past, all it will do is bring problems to the fund managers so what is the point? Just have one tier for the big boys and another for everyone else, still puts the likes of Transact out in the cold.

There has been a stupid obsession with how much firms EARN and not how much things cost.

This is a Retail Reattribution Review, an attempt at giving distribution to the banks and large organisations, an opportunity for the financially strong providers to stamp on the necks of the capital poor providers, once that is achieved then the cost to the public will be anything but cheap.

How anyone could ever think that disclosing to the World a suppliers tender to a large organisation for services would lead to lower costs, frankly belongs in an institution.

They can negociate better terms with the fund managers - respective lower AMC if they want to. But they won't get anything for that apart from their platform/charges.

A fund manager can run a few share classes so if Cofunds wants to negociate why not. He may not get any savings but who knows. It can be named Cofunds share class (0.739% AMC).

Also it will be good for the passive sector as they can give "real savings to the people".

What I am not happy is the execution -only to get away with "little" disclosure. They will say that their platform is free.

E,.

Imagine it was the same for you as an IFA.

I as another client can see all of your charges to other clients.

I have £50k to invest, I see that you charged your best client 1% for investing their money.

You say you are going to charge me 3%.

Over 50% of your business are people like me.

Are you going to risk losing us and stick at 3% to us and 1% to him and people like him?

Knock us all down to 1%?

Or raise everyone to 3%

What will your strategy be to keep us all on board??

Lowest possible charges or an easy life??

Worst still all of your competing IFAs can see your charges too, how might this affect your business?

It doesnt take a genius to see the issues.

Has it escaped everybody’s intuition that all the client really wants to know is how much in total it is going to cost him to deal. Who get’s what, as far as the client is concerned, is really not of paramount importance. If we have an unbundled platform will the client be able to access the funds as (or more) cheaply as he could have done via a cost effective adviser and with the platform negotiating discounts?

An unbundled platform has to charge explicitly for its service. Is this likely to be cheaper than the (hidden) bundled charge? Where is the client better off? Yes, it is now implicit the client can see how much the platform charges, but who cares? What we have to look at is the bottom line. You have £1,000 invested, how much goes into the investment? The difference is the charge. Does that have to be rocket science? If advisers can’t work it out for their clients maybe Level 4 isn’t high enough and we need Level 24. If the Regulator can’t see the sense and that on occasion interference in the market has unintended, unwanted consequences, then perhaps they too should go back to the drawing board.

The charges Gestapo wish to have a purity that often belies practicality, but in the end is it beyond our wit to lay out the overall deductions clearly and do we really have to treat or clients as complete half wits?

If the FSA want full disclosure (which I have absolutely no problem with) there should also be a cost included to show what the FSA receives out of the total costs.

For example, if our overall regulatory fees amount to approximately 10% of turnover, on that basis if everyone is the same we can safely say that for every £1,000 deducted in costs, £100 goes to the FSA.

This is a simple example and other firms may have higher or lower regulatory costs as a percentageof turnover so an industry average should be obtained.

God knows the FSA ask for enough information from us every 6 months so they should be able to get this info without too much difficulty and work it out themselves.

If the average is 20% then at least teh clients have a good idea of what they are paying for. It seems fair and reasonable to me.

In reality most clients don't give a damn so long as the cost for the service they receive from their adviser is reasonable. The rest is simply splitting hairs and a complete waste of time, resources and does little to improve any outcome for the investor.

That however seems to be one of the few things the FSA are pretty competent at.

"Trust us, we're a big financial services company", ceased to be believable some years ago and the first people who realised what was happening were generally IFAs so it is touching to see here some IFAs still clinging to the old faith that bundled pricing couldn't possibly be hiding some nefarious pricing practices designed to influence choice. The less trusting would say 'prove it' and that means unbundled pricing.

A quick glance at Cofunds accounts shows that they are earning more than 25 bps which is so commonly assumed, which may have something to do with a small initial charge or maybe more to do with 'shelf space' deals and other charges for 'prominence' but how would we know? The same glance also tells you that's not a business you would want to be a shareholder in!

In fact I find myself agreeing with Alistair Conway in that Cofunds seem to have embraced unbundling in theory and are arguing against the rebate ban to clients rather than the rebate ban to themselves. All converts welcome no matter how bad their previous sins!

Incidentally, unbundling is already with us and doesn't depend on the RDR. This from the recent FSA DP10/02;

''3.13 Platforms are currently obliged to give an indication of the income level they will obtain from product providers in relation to designated investment business (for example, arranging an investment transaction through the platform). The platform is obliged to disclose the actual amount on the customer's request. Following our review of platform disclosure, we found this information is rarely prominent; so many customers may be unaware of indicative costs and their right to request specific information.''

The accompanying note says that this rule comes from 'maximum harmonising EU directive, MiFID'.

So you only have to ask (or more likely insist and quote the FSA) to find out how much rebate cofunds gets.

It is amazing to see that some people think transparency of fund costs to a platform will aid competition.

I have seen it all now.

Funds will simply, in the end, set one or two prices and be done with it, otherwise they invite trouble. They will probably set one price for Cofunds and Skandia, another for everyone else.

This RDR is fast becoming an excuse to get rid of competition, competition in distribution and competition in platforms and wrap.

The whole thing is a farce.

The FSA invented something good in TCF then proceeded to push the RDR, typical really.