FSA is right on platform unbundling but needs to do more

I am surprised to note that someone with the knowledge of Phil has not included Novia in his summary.

Any particular reason?

It would be helpful to read his opinion of their status in terms of RDR preparation.

Interesting piece but one which perpetuates the notion that fund supermarkets only charge around 25bp. A cursory glance at Cofunds 2008 accounts suggests that the actual number is a few basis points higher (perhaps attributable to their share of initial charges where these are still levied).

Given Cofunds' turnover is a blend across their retail and institutional propositions it would be great to know how much they're actually charging retail clients. And that's without making any mention of margins on cash which is another story altogether...

Does anybody else think that this will drive UP prices? I think that unbundling is a good thing as is transparancy.

However, Cofunds/Fidelity Funds Networks/Skandia etc have made their money by squeezing the fund houses. I suspect that if disclosed, the deals that Cofunds/Fidelity get from fund houses are much better than those negotiated by the smaller wraps, simply because of their comparative size.

If everything becomes transparent, do we think that the fund houses will bring their prices up or down. I suspect that there will be a levelling up as the platforms can no longer hide their charges.

Excellent news for fund house shareholders, perhaps not so great for the end punter.

I would argue that anything that increases transparency and broadens customer choice can only be a good thing.

Sure, there will be circumstances where one client or another will be worse off but at a market level I can only see client outcomes improving. It surely far better to have clients/advisers influencing asset management pricing through demand than having platform do it by limiting choice?

They should be more interested in insured funds versus mutual debate and unbundling charges on insured funds, missing performance etc.

That is a much bigger fish.

What about the administration burden that is taken away from fund managers. After all, if I invest via a M&G fund on a platform I do not receive any correspondence from M&G. Should fund managers not pay the platform for this? If not are the fund managers not receiving a benefit that is ultimately being paid for by the retial customer, my client. The FSA has a bit more thinking to do on this one. Let the rebates continue, make sure they are disclosed and ensure platforms cannot stop a fund from being listed just because the managers will not pay a rebate. Then we might see fund management charges starting to fall.

Re Hargreaves Lansdown, if you offer customers a rebate of the management charges you will attract business but does HL actually tell its customers that it also gets rebates from the fund managers, a proportion of which it then passes on. Not too sure that taking 0.5% + 0.25% so that you can pay back 0.15% for doing nothing is particularly ethical. Very profitable yes but RDR ready, unlikely.

I agree that there are bigger fish to fry and that we seem to be getting lost in the minutiae. Transparency can have it's benefits but is piling it all in front of the consumer going to help? I have clients on Skandia and Transact so have no particular axe to grind.

Car dealers, by law, have to show an 'on the road' price. That is because it is easier for clients to understand what they are paying. Makes sense to me.

I fly with BA & Ryanair and, strikes aside, the former is becoming more popular with me, the consumer. I want to know what the flight to wherever is going to cost me, all in. I don't care how much it costs BA to shift my bag, or give me a cup of coffee. Ryanair breaks down (adds up) all their charges and I find it tiresome and a P in the A, I just want to know what it will cost me to get from A to B; who is earning or paying what in the background is of no interest.

Isn't that what most of our client want?

I’m afraid that the unbundling brigade is rather like the Global Warming adherents. To gainsay is to be an apostate.

What I think is fairly evident that unbundling will lead to higher costs. How is that a worthwhile outcome? Why is it assumed that transparency cannot be achieved with a bundled platform?

Perhaps the unbundled brigade’s clients are entirely composed of ‘anoraks’ that require to know where every penny goes.

I can attest that as far as my clients are concerned (after all that’s all I can speak for) they are only interested in the bottom line. If the give me £1,000 how much of that is invested and how much will it cost them in ongoing charges per annum. I can provide that answer using a bundled platform – so I for one can’t really see what the FSA is driving at. I would have thought that it is only a matter of disclosure and if one commercial entity can negotiate a deal with a manufacturer so what – that’s business. If it benefits the client – which it does - then jolly good.

The deal benefits all parties except the unbundle police and the FSA. The platform makes a living, the fund manager saves on admin and call centres, the IFA is able to manage investments in a better way and the client has all this at no greater cost. (I don’t agree with the assumption that a platform investment has to cost more). It’s just that some people just have to scratch – even though there is no itch. They just love complication for its own sake and no doubt ramp their fees by providing information that is often not really required by most ‘normal’ people. Yes – I put myself into that category as I am also a client as well as an adviser.

It’s very much the same thing as using a travel agent. Sure my holiday will cost a bit more – not that I waste time calculating the difference. It’s just that I have better things to do than sit in front of a computer researching a booking a holiday. I know my stockbroker makes a charge – so what. I don’t scrutinise it. As long as he makes me money. I too buy investments for myself and use platforms. I don’t sit there analysing the cost – I already have an overview – it’s the VALUE that concerns me.

If only the Traffic Wardens at Canary Wharf could understand that.

The fund managers will need to provide greater clarity of their charges, both direct and through a platform, where they are selling direct to a client or through a 3rd party. This might mean they create different share classes but I suspect that 0.25% is not the amount that they would reduce the price by but nearer 0.35%. (This does assume no trail income to the adviser.)

I know of 1 recently launched set of funds where the AMC is 1.5%, but with share classes as low as 0.65%.

What it will do is stop the fund managers negotiating different rebates to each platform, which is what happens now.

It may even get buyers to look at paying for advice, when they see the alternative prices and where they can be accessed.

I am already concerned at the number of trees that get chopped down to provide clients with 30 page key features documents which many do not wish to read.

Surely the client needs to know the cost of any product, the potential investment performance good and bad and what it is supposed to do for him.

I believe they already receive enough information to make an informed judgement. Providing the advisor remains independent and does not become wedded to one platform for his own sake (be it remuneration or for ease of adminsitration) then surely that is sufficient.

Clients are not entirely stupid and need to be treated as such. They are well aware that nobody does something for nothing be it the platform provider, investment house or even the advisor.

Our industry is so far up its own backside it can't see the wood for the trees.

Interesting to see such a defence of the bundled approach.

Can anyone give me an example of an industry where in the fullness of time the consumer got a poorer deal through the introduction of greater transparency and broader choice?

This is not an anorak point, it is a fundamental point about whether the pricing of the retal asset management market should be dictated by clients and their advisers or by platforms and life companies.

It's that simple and the limited instances where short-term cost might be an issue will be far outweighed by the medium/long-term benefits (for the customer).

With reference to the airline analogy, we surely all know that that industry had to unbundle before any of us could have the slightest insight into value? The unbundling also led to massive overall reductions in cost and the democratisation of the sector, to the consumer's ultimate benefit.

Sure, it may be better to bundle back up now but that is on the basis we have a reasonable impression of what the true price. We are nowhere near that point yet.

"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.

David is right that a quick glance at Cofunds accounts shows that they are earning more than 25 bps, 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!

I think that the FSA is profoundly wrong in suggesting that Fund AMC rebates to clients should be banned and replaced with cheaper OEIC share classes. This fails to understand and will stifle the dynamic nature of the process of negotiating lower charges (not every unbundled wrap has the same deals) and will cause immense client confusion (read irritation) when they see that they are buying units/shares at higher than published 'standard' prices. Why is this deemed necessary? Because rebates are being presented as discounts which may obscure the total effect of charges. Firstly, this doesn't say much about the FSA's opinion of it's own disclosure of charges regime. Secondly, lower share price charges can just as easily be presented as discounts. Overall, not exactly a great example of clear thinking!

Glad to see that some IFAs have an understanding of business and can see at which point transparency starts killing off competiion. Rebates are the point for me.

Exactly as someone said above large platforms squeeze fund charges which in turn forces small platforms to utilise technology and efficiency to compete and on the competition thunders.

Already product development is being stifled as only RDR ready product is being talked about and funded, nothing else of note has been launched.

The only pricing competition in this industry since this ever tightening regulation is if any of us can charge enough to survice with the ever increasing regulatory costs, and can I find sufficient clients who can afford these costs, regulation is the major driver of costs here, in other business it has been inflation, oil prices, exchange rates etc

I suppose that is what you get when a government body tries to control an industry's margins - a complete mess and complicated.

Does the FSA think the public is with them and happy with the increased cost?

'....clients are entirely composed of ‘anoraks’ that require to know where every penny goes.'

Yup, I think its entirely wrong for clients to want to know how the different layers of charges will be doled out to the various third parties...where will it end?!

Next thing you know IFAs won't be allowed to take 8% for flogging a bond to a client.......

Of course, to be serious for one moment the idea that a fund can only get on one of the fund supermarkets by paying a back hander to that supermarket, leaving the smaller boutiques who can't afford to pay these fees out in the cold, is plainly ludicrous in a post RDR world, where the platforms will have to be WOM.....

Also, what about RIPs? Some of the RIP constituent vehicles by definition can't pay 'rebates' to the platform, thus ensuring that they are not represented on that particular platform......again, goodbye RDR.

As regards the comments on prices being driven up, the charges associated with the UK fund industry have always been far too high, even before the platform fees are included. As Morningstar says:

'For several years now, we have run a study showing that UK investors pay nearly double what US investors pay for large-cap domestic equity offerings.'

It will be interesting to see if the recent increase in passive investments, as well as the launch last year of Vanguard into the UK will force down prices.....

I am yet to be convinced that unbundling rather than transparancy is the only solution.

As someone else said, the Airline and holiday industry may well need to rebundle following teh Volcanic problems. How can an Airline who charged £2 for an air fare be expected to pay hundreds or even thousands of pouns for someone's overnight accomodation when that person arranged all the rest of their accomodation directly in order to save on a package holiday. You get what you pay for....

One of my most expensive holidays ever was my own "unbundeled" family holiday involving four bikes, 34 cycle panniers, my wife and two teenagers, trains and campsites in France. It was one of the most memorable and a really good learning experience for all of us, but a packaged holiday would have been much cheaper and nearly as much fun.

On bundled wrap, I have it on good authority from a former employee, that for Skandia, on a fund with a 1.75% AMC it gets split up like this:

Skandia takes 1.05%

Fund manager gets 0.2%

The IFA gets 0.5%

The IFA does most of the work and takes on all of the risk.

I cannot see this continuing. After all, a wrap or platform is simply and electronic means of holding assets.

If some wraps can offer the service for 0.25%/0.35% per annum then that does seem to leave the old style, opaque bundled platforms out on a limb.

Greater transparency and broader choice seems no bad thing to me.