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Come on Skandia and Cofunds, how much rebate are you getting?

by Daniel Grote on Aug 31, 2011 at 10:16

Come on Skandia and Cofunds, how much rebate are you getting?

Well done to Fidelity for revealing the fund manager rebates it receives on its FundsNetwork platform. It's a significant moment in the short history of platforms, and has helped to introduce some long-needed transparency in the non-wrap end of the market.

Now Fidelity has made the first move, rival fund supermarkets Skandia and Cofunds must follow. Neither have imminent plans to follow suit, but surely they cannot afford to maintain the old smoke-and-mirrors approach to pricing while FundsNetwork holds itself out as a beacon of transparency.

Whatever they decide to do, they know they need to disclose rebates by 31 December 2012. What will be interesting to see in both cases is how much rebate they are receiving compared to FundsNetwork.

The figures Fidelity has disclosed are pretty unexciting: on average they receive 24.9 basis points (bps), with only a very small percentage of funds paying the platform 50 bps.

So what have Skandia and Cofunds got to hide? Bigger rebates would be the obvious answer. It's likely that Skandia tops the tree in terms of the cut of fund manager payments it receives, as became clear when Brett Williams jumped ship to join Cofunds.

Arriving at the business, Williams pushed for a larger slice of fund manager charges, in a move that was understood to be motivated by the chunk he knew his former employers Skandia were getting. It's thought that move led him into conflict with fund manager shareholders, before he left the platform last year, so it's unclear how successful he was.

Skandia said at the time it received up to 90 bps on some funds. That's a whopping number, but until Skandia decides to join FundsNetwork in publishing their cut, we won't know how widespread that is across all the funds on the platform.

It's time for both them and Cofunds to 'fess up. Advisers need to know.

43 comments so far. Why not have your say?

Stevie Boy

Aug 31, 2011 at 10:36

Would be interested to hear the same from Hargreaves Lansdown - apparently they believe that the client has no interest or desire to know what the rebates are so long as they know what charge they are paying from their investment.

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Stratfield

Aug 31, 2011 at 10:46

Advisers need to know do they? Why is that then? The modern vogue of knowing where every last penny goes is quite simply irrelevant. When you buy a bottle of wine do you ask Tesco, Waitrose and Lidl to account for every financial transaction before you buy the bottle? Of course not, you buy it, take it home and drink it. If you don't like the price you can go somewhere else.

And by the way Daniel, would you like you to publish how many lunches /events you went to last year that were paid for by your industry contacts? It's time to 'fess up, advisers need to know !

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Dan Rear

Aug 31, 2011 at 11:28

I quite agree, Stratfield. As long as the customer's happy with the service offered, and the charges are outlined to them when they buy, what does it matter. Too much transparency is a bad thing.

Yet again the 'Consumer Lobby' seems to have won the argument, anti-capitalism rears its head again. Will they be happy when all providers, platforms or otherwise, have left our shores and headed out East?

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Roy Frost

Aug 31, 2011 at 11:29

Let's see if Skandia reveal the extent of their ARCH CRU rebate? I'm still paying management fees to Skandia on the suspended fund, absolutely outraged by their stance on this. What do they actually do for their money, keep it under the bed strategy for me in the future (and for many fellow investors caught in the old boys, self serving network).

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Scotty Jock

Aug 31, 2011 at 11:48

Have Standard published their rebates yet?

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Philip Melville

Aug 31, 2011 at 12:02

The industry is riddled with pricing issues from commission overides demanded by networks etc to subsidise member charges to specially priced packaged products sold by banks etc.

It is easy and apparently popular to focus on individual cases but the fact is that we are a very long way from a transparent level playing field.

Probably a good idea to reflect on your own circumstances before throwing that stone you are holding in your hand.

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You must be joking

Aug 31, 2011 at 12:11

Daniel - why do we, as advisers, need to know?

The gross TER of each fund is identical via FNW, SIS and CoFunds so that is what the client pays.

If I then find out that FNW get 24.9bps, SIS get 60bps and CoFunds get 30bps what does this actually tell me? (other than SIS are better at negotiating rebates)

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MPT

Aug 31, 2011 at 12:34

Skandia would release the rebates received to any AUTHORISED ASVISER this was a requirement under MIFID and the rebates have been published for at least the last 2 years. I know they would only release this under request. Unless something has changed internally like having a good consultant.

Typical rebates are 0.85% on Equity funds . e.g. 35bps in excess of standard trail commission.

This should set the benchmark for pricing for unbundled platforms.

I do agree though thet the total cost of a service is all the consumer requires fowever we seem to be driven by a regulator who only part sees the picture.

Client pays for , Advice, Implimentation, Administration at Advisers, Administration from a platform, Custodianship, Fund manager charges, Underlying stockbroker costs, Stamp duty. Not sure is I have missed anything however does the consumer really want that much transparancy?

I forgot about the bonuses that come out somewhere to the platform provider staff & fund group staff based on sales ( This is also really a commission!)

A rebate is a commission in the chain whichever way you look at it. If it is wrong at one end it is wrong at the other.

However the client does not care and approches an adviser to sort this out for him/her to get the good value overall.

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Neal Hattersley

Aug 31, 2011 at 13:48

I think it is the lack of transparency in all financial services that is the issue. This will become increasingly difficult to justify over time. As for 'export' of services. I also sell custom T shirts. The shirts are bought in bulk and the 'custom' design is done in China overnight. The T shirt is delivered in 24 hours and the sale is either F2F or Phone.In Life, Everything costs something. The key is to be open about it and not educate consumers to be obsessed with 'discounts' like they are in the States.

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Phillip Bray

Aug 31, 2011 at 19:07

FAO Dan Rear: "Too much transparency is a bad thing"

That's a shocking statement. How can transparency be a bad thing?

As an industry we need to promote transparency, over the years a lack of transparency has given rise to a feeling from some consumers that there are too much "smoke and mirrors" involved with charging structures. This is an opportunity for the industry to stand up and declare exactly what is being taken out of a client's investments and who is taking it.

We are not dealing with a tin of beans here or a bottle of wine, which are relatively cheap items which no one will lose sleep over if they make the wrong choice, we are dealing with people's money and financial future.

I fully support the move to make platform providers disclose what rebates they recieve.

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You must be joking

Sep 01, 2011 at 06:54

Dear Client

We are recommending that you invest £10,680 in an ISA for the current year and that this money be divided between the following funds which pass our stringent research criteria:

Fund A

Fund B

Fund C

Fund D

Fund E

etc etc etc

These funds have been chosen so that, when combined, they build a portfolio which matches your current attitude to investment risk and the returns from the portfolio are expected to be between -x% and +y% 95 years out of 100.

As each of the above funds is a UT/OEIC the paltform we are recommending a fund supermarket (a Wrap would give access to a other investments but would be more expensive for each of the above funds).

When selecting the fund supermarket via which to hold these funds, certain people believe you should have a breakdon of who receives what from the AMC, so here goes:

Fund A has an AMC of 1.5% and a TER of 1.65% this is the same whether purchased directly from the fund group or via ANY of the fund supermarkets, but

Fund supermarket Z will receive 0.249% out of the above charge

Fund supermarket Y wlll receive 0.300% out of the above charge

Fund supermarket X will receive 0.600% out of the above charge

Fund B has an AMC of 1.2% and a TER of 1.27% this is the same whether purchased directly from the fund group or via ANY of the fund supermarkets, but

Fund supermarket Z will receive 0.249% out of the above charge

Fund supermarket Y wlll receive 0.200% out of the above charge

Fund supermarket X will receive 0.500% out of the above charge

Fund C has an AMC of 0.50% and a TER of 0.57% this is the same whether purchased directly from the fund group or via ANY of the fund supermarkets, but

Fund supermarket Z will receive 0.249% out of the above charge

Fund supermarket Y wlll receive 0.200% out of the above charge

Fund supermarket X will receive 0.400% out of the above charge

and so on...

Question for Daniel and those who think this additional information (i.e. transparency is beneficial).... why exactly?

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Philip Melville

Sep 01, 2011 at 08:30

@ YBJ

Apart from the basic stupidity of your post you confuse the function of wrap and supermarket.

Clearly you choose to hide your identity for a reason probably to avoid exposing your ignorance of the marketplace,

In our business which has used Transact for over 8 years we have very real experience that clients do appreciate and value the total transparency that our process offers.

Transparency is a difficult new position to deal with for client and firm but once mastered the emotional satisfaction that it brings to a realtionship is beyond measure.

Only those who have not enbraced transparency can harbour the opinions you hold or be unaware that the core problem that the public have with our industry is its opaque presentation of anything involving client money..

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You must be joking

Sep 01, 2011 at 08:48

@ Philip

I'm too polite to call you a moron, so I'll give you a little challange instead:

For each of the following funds, please provide a breakdown of the total cost split between the investment house (retained portion of TER), transact and your firm:

L&G All Stock Index Linked Gilt Index

Allianz PIMCO Gilt Yield

Fidelity MoneyBuilder Income

M&G Property portfolio

M&G Recovery

Invesco Perpetual High Income

Rensburg UK Mid Cap

Henderson European Growth

BlackRock North American tracker

Fidelity South East Asia

That's just 10 funds selected at random from those in our model portfolios.

Also, tell me why you use a wrap as opose to a fund supermarket...

YMBJ ;-)

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Philip Melville

Sep 01, 2011 at 09:07

Your annonymous opinion is of no interest at all.

Our business earns its remuneration by providing a service to clients for which they pay us. We use Transact to eliver a major element of our service precisely because it offers complete transparency and allows us to demonstrate our unbiased position.

Our business is not a theoretical argument but a sound well established proposition that has long met all of the proposed requirements of this and other regulators.

Transact receive precisely nothing from any investment house.

My firm, Argyle Financial Group receive precisely nothing from any investment firm or indeed from anyone other than our clients.

Over 99.5 % of the funds we use are of nil acquisition cost .

All of our income and all of Transacts income comes from its clients and that information is freely available to anyone in a totally transparent form.

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You must be joking

Sep 01, 2011 at 09:34

So, having not only completely misunderstood the other thread that you've commented on (both from a point of view as to what the article was about and thus all comments associated with that article), you're now unwilling to disclose the hugely important transparency that you've been 'ranting' about for the last 24 hours.

I find that extremely amusing!

Of course, this will be due to the fact that using your chosen wrap, with all their transparancy will result in the cost to the client (excluding your own costs) of holding each of the above funds, being higher than purchasing the same funds on, say SIS.

Transact have a 0.2% transaction commission, which as far as I'm aware applied to all asset purchases. How do you come to the conclusion that 99.5% of fund have nil acquisition cost?

We are also a fully fee based adviser for all retail investment products, but what WE as a firm don't want to see is the cost of retail funds increaing because of our chosen platform....

Anyway, enough of this, difference of opinion... but it is a shame you wouldn't put your figures where you comments are ;-)

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Soothsayer

Sep 01, 2011 at 09:57

How can consumers assess how much they are paying for intermediation, be it an advised sale or execution only (or in the case of Hargreaves a very firm steer towards certain funds at any one time), if they don't know how much that intermediary is receiving ?

Trying to draw parallels with groceries is a complete and utter irrelevance.

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Phillip Bray

Sep 01, 2011 at 10:08

Soothsayer, I couldn't agree more.

Parallels with groceries and other consumable items is pointless.

Surely it would be good to know, with someone like Hargreaves, whether there is a correlation between their Wealth 150 and the rebates they recieve from fund managers. If there isn't why not be transparent and show there isn't?

On a wider point, denying people, this information (whether is it irrelevent or not) just looks like the industry has something to hide. It is good PR to show you have nothing to hide....unless of course you do.

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Stratfield

Sep 01, 2011 at 10:40

"Trying to draw parallels with groceries is a complete and utter irrelevance"

Really?

A consumer need to know (as has been stated elsewhere) how much of his investment will be reduced by charges each year. End of. Does he need to know how much of the charges are due to the fund manager incurring costs by having to buy toilet rolls for his office ?

As YMBJ said:

"Question for Daniel and those who think this additional information (i.e. transparency is beneficial).... why exactly?"

To date no-one has answered that question.

Philip Melville said "Transparency is a difficult new position to deal with for client and firm but once mastered the emotional satisfaction that it brings to a realtionship is beyond measure."

Emotional satisfaction ??

Phillip Bray said "

We are not dealing with a tin of beans here or a bottle of wine, which are relatively cheap items which no one will lose sleep over if they make the wrong choice, we are dealing with people's money and financial future"

And knowing the details of every single cost etc is going to stop you making what wrong choices exactly ?

Whether you like it or not we deal with products, no different to a bottle of wine or a bag of spanners. The product has an end price to the customer who can then make a choice. As advisers we pick the products for our clients and have to justify that selection, and I'm reminded of the old RWL guidleline of "Why the company, why the product, and why the fund". It seems that once the lunatics have taken over the asylum that that list will include another 100 "whys", right down to "why the quilted bog roll in Skandia's toilet"

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Soothsayer

Sep 01, 2011 at 10:55

Sorry but that is more nonsense. HL are a broker, not a retailer in the grocery or high street sense. Its not as if they hold any stock of wine or spanners. These are products with a one off cost at point of acquisition, we are talking about recurring costs for a service i.e. investment management and intermediation. Please compare like with like otherwise the comparisons are meaningless.

What have you got to hide Stratfield, why won't you tell us ?

Why is it just HL that have such a major objection to this ?

There must be something amiss else you would just open your books up.

Looking forward to seeing the full info!

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Philip Melville

Sep 01, 2011 at 11:09

Stratfield,

Clearly another no name fool without any experience of dealing with clients.

One of the biggest issues for clients is trust and having the facility to understand what is happening with their money if they choose to be interested,

Emotional satisfaction comes to clients from knowing the facts and having the opportunity to make their own judgements on issues from those facts. Trust comes from knowing no one is trying to hide information from you or to present it to you in an unintelligible manner.

The one thing that shines from the back end of every annonymous poster is how little they know of how clients view our industry or indeed from a lot how little they actually know of the industry itself...

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Stratfield

Sep 01, 2011 at 11:09

HL are a BUSINESS, and they SELL something to make a PROFIT.

Geddit ?

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You must be joking

Sep 01, 2011 at 11:10

@ Stratfield

Your comment made me laugh, literally...

You are correct, of course, neither Daniel nor anyone else has offered a reason why.

@ Soothsayer

When it comes to HL, I agree with you wholeheartedly as they distribute directly to retail clients and as such there is the POTENTIAL for bias in the selection of their Wealth 150.

Having said that, Daniel's article related solely to Fundsnetwork, Skandia Investment Solutions and CoFunds and doesn't actually mention HL anywhere.

You will find that the comments on this article therefore relate to the article itself and thus to the companies concerned.

Each of these obtains most of their business via IFAs and, as such, it is the IFA's job to determine the overall cost to teh consumer.

The exception is FundsNetwork who also deal directly with consumers but in that instance just retain the natural trail commission too...

This is an odd situation as, apparently, for IFA clients they can provide their administration services for 24.9bps but for direct clients the same administration services cost 74.9bps... very odd indeed!

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Stratfield

Sep 01, 2011 at 11:13

@Philip

"Clearly another no name fool without any experience of dealing with clients"

No need to be rude young man, "manners maketh man" remember ?

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Philip Melville

Sep 01, 2011 at 11:29

Your choice Stratfield so dont be surprised that you do not merit manners and thank you so much for the young man.

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Bank pensioner

Sep 01, 2011 at 11:32

Philip Bray is closest to the answer. The FSA has discovered that to get on product lists or into life products, providers must pay a larger than normal fee so that the "recommendations" are biased. Looking at this thread I doubt any of the participants would be fooled, but less adept advisers might, as might direct customers.

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Adam C

Sep 01, 2011 at 11:36

I think it is important for advisers/firms to know this information.

If firms recommend fund supermarkets then they need to know if the business models are commercially viable come 2013. Is this not part of the due dilligence an adviser needs to do before recommending a fund supermarket to a client?

This information has been available for those willing to ask the questions for some time. I do however think that transparency in the sector as a whole will develop adviser's understanding of how funds and wraps actually get remunerated.

Also, the comments section on blogs is for debate, discussions, not throwing stones behind your desk.

Please remember that this can be read by the public and does nothing for our industry.

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Simon Frost

Sep 01, 2011 at 11:54

Adam C, Stratfield, Soothsayer, Mr. Joking and others who hide behind pseudonyms. I totally agree that these blogs should be used for, healthy, debate and discussions. What I do not undersatnd are why some of you do not have the courage of your convictions and put your name to your considered opinions. As Adam mentions potential clients read these blogs, you never know they may wish to become clients, but they do not know who you are.

My opinion, for what it is worth, is that there should be transparency across all platforms / wraps. In addition for investment funds I would also like to see transparency around the additional costs that they incur over and above the TER, such as Stamp Duty and trading costs.

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On the inside

Sep 01, 2011 at 11:56

@ You must be joking.

"This is an odd situation as, apparently, for IFA clients they can provide their administration services for 24.9bps but for direct clients the same administration services cost 74.9bps... very odd indeed!"

It is not the same administration service which is why there is a difference in costs. What is provided to direct clients is very different to advised clients as advised clients belong to the broker.

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You must be joking

Sep 01, 2011 at 12:05

Some corrections:

@ Stratfield

Philip is most certainly not a 'young man' by any stretch of one's imagination.

By the insults posted here, and lack of will to back up any of his claims, he appears to fall into the Grumpy Old Man sector :-)

@ Philip

On your website you quote research from Brinson etc as "In fact, research has proven that more than 90% of investment performance comes from Asset Allocation, with less than 5% coming from fund selection."

You should be aware that Brinson's research actually states "more than 90% of the VARIABILITY of a portfolio’s performance over time is due to asset allocation."

This is a fundamental but unfortunately common error.

And finally, a definition for Stratfield... as no-one has answered him/her yet

Emotional satisfaction - this is the warm gooey feeling you get as an IFA by charging clients 1% per annum for an annual review and using what I can only describe as the worst 4 question risk profiler I have ever seen

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Christopher Petrie

Sep 01, 2011 at 12:13

I agree with Simon F. How ironic to see some people posting anonymously, and arguing against transparency. How even more ironic to see some other anonymous people arguing in favour of transparency!

The reason why transparency works (in any market) of course is that a) it increases competition (and thus reduces prices to the end user) and b) ensures everyone getting paid fulfils their part of the job - or how else can they justify their fees?

Those in disagreement with transparency are, unfortunately, viewing the world from a different era....the world changes, and we must change with it.....

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Philip Melville

Sep 01, 2011 at 12:23

I shall end here with the comment that at least you know who I am and that if you wish can get 29 years of audited accounts for my firm showing that we do at least know how to make a profit consistently .

We never claim to be perfect but we have many clients and their families who have been with us for more than 30 years - 67 now Stratfield if it is of interest

.

I also suspect that we will be around with our clients after the annonymous posters are long gone from the industry.

Ps. Simon Frost .... over the past 5 years we have actually been contacted by prospective clients as a result of these blogs and the NMA website and in lump sum terms have taken over £3 million in brand new business from them.I know some of them still read the site so thanks again - you know who you are ( annonymous for client confidentiality this time )

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l'ifa passeport en provenance de France

Sep 01, 2011 at 14:43

you must be joking .... is that the risk profiler ? is it not 3 questions?

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You must be joking

Sep 01, 2011 at 14:52

@ L'ifa

I gave him the benefit of doubt that the 'are you going to need anything this year' counted as the 4th question....

It's sunny here, I'm in a generous mood :-)

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l'ifa passeport en provenance de France

Sep 01, 2011 at 15:00

you must be joking,

how about the question on a lot of profilers,

what is your risk compared to your friends, that one always makes me chuckle.

then you have 4!

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You must be joking

Sep 01, 2011 at 15:12

@L'ifa

very worrying...

So, what's your take an Daniel's article?

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l'ifa passeport en provenance de France

Sep 01, 2011 at 15:25

You must be joking

Ye, its ok. if we are going to have fee/commission disclose seems right to me that we get TER sorted as well.

Me thinks that maybe a TER disclosed say 1.8% is in fact more like 3% plus, regulators are a bit asleep on this one , and it effects the poor client

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Scotty Jock

Sep 01, 2011 at 15:44

On Charges heres what I've read re the effect of UCITS IV will be:

" Charges This splits out into initial charges, exit charges, ongoing charges and performance fees based on the most recent year. Total expense ratio (TER = ongoing charges + performance fee) will disappear from the regulatory lexicon."

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Phil Castle

Sep 02, 2011 at 15:53

I think there is a big difference between "Transparancy" and telling someone something they are not interested in at the expense of what IS important to them.

I am pro transparancy, i.e. availability of the information for those who are interested, but as YMBJ and Dan Rear imply, too much information can mask what a client NEEDS to know.

So tell people what they need to know, but make sure they can find the answers to what they want to know.... otherwise people will spend more time finding out something they think they want/need to know and never take any action on the Needs.

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Commentator 761497856

Sep 02, 2011 at 16:48

You must be joking,

I like how you imply somebody is a moron, and in the same sentence spell the word challenge incorrectly!

A thought:

Should a building society/bank disclose its financial statements to it's members/shareholders?

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Duncan Orr

Sep 02, 2011 at 16:50

You must be joking

"Also, tell me why you use a wrap as opose to a fund supermarket..."

Perhaps one reason might be that Philip doesn't want his investment proposition (model portfolios) to be defined by the "pay and display" approach adopted by supermarkets and would prefer the unrestricted choices offered by leading Wraps???

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Jigga

Sep 05, 2011 at 13:52

I love the way the anti-transparency gang use the argument that the end cost to the consumer will increase... Utter nonsense. This opinion is based on profitable Wraps having higher costs than Fund Platforms.

The clear difference is that the Fund Platforms are pushed by market share and not short term profitability. They will all try and undercut one another in the pursuit for market share. Fact !

End result will be that the Platforms are transparent and also cheaper than Wraps but their service proposition is not as good which is reflected in the cheaper price.

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Graeme Ferguson

Sep 05, 2011 at 14:22

Some great fighting on this subject...

Wraps and platforms offer different options... in my opinion anything that has a controlled distribution usually has it for a reason, this may because the system can't handle it, they believe clients don't need the choice or they control for selfish reasons which may be cash incentives. HL top 150 has always made me shudder, but I don't know if they are trying to help or have their own agenda.

If you are using Wraps then I would suggest that you are probably more likely to use heavily diversified portfolios, which Cofunds and Fidelity would not be able to cope with as they are constrained and you would be likely to find some funds unavailable.

If you are using model portfolios then you will tend to find the funds you need on Fidelity & Cofunds...I do generalise but this seems mostly the case.

Therefore it is likely that these funds will be cheaper on the Fidelity Cofunds model..... and really you need to question your need for a fully unconstrained WRAP platform not to say that it would be that dramatically more expensive if you choose the right Wrap

Personally transparancy is a good thing as it will disclose if a old skool platform has an agenda....i suspect that the secretive nature of this usually means that there is an issue here. Fidelity have been bold in their steps however they are large now plus remember these firms don't just make moneyfrom rebates...they are supported and remunerated in other ways!

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Clive B

Sep 09, 2011 at 23:40

Interesting reading.

YMBJ - as a client, I have to say I agree with your post of Sep 01, 2011 at 06:54. If (say) 1% of my money goes in charges, I have no real interest how that's shared out amongst the various parties.

I think there's a danger that if clients have a choice between Funds A and B - same overall TER - but see Fund A pays 0.3% to party X, whereas Fund B pays just 0.2% to the same party, clients MAY be attracted to Fund B - missing the fundamental point that Fund A - even after the slightly higher charge (to ONE party) returns more to the client.

Having said that, I expect my comment ranks just above that of pond scum as a) I'm a client, b) I'm not putting my full name to the article.

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