FSA may hand lifeline to bundled platforms with share class changes

There seems to be an inalienable wish by some to agonise and navel gaze to the point of obscure complexity.

Why do you need different share classes? Let’s take the current system. For (say) £1,000 a given amount gets invested. This amount suffers deductions for the adviser remuneration and fund management fees. Of the fund management fees the platform takes a slice as its ‘turn’. So the client ends up with a net invested amount of (say) £960. Therefore it is perfectly apparent that the ‘up front’ charge is £40 or 4%. On an ongoing basis – taking the same criteria into consideration the RIY (or TER when available) is (say) 0.5%.

Now the adviser charges a fee. The fee is less than (say) the customary 3% commission – so the net invested amount becomes (say) £990. Therefore the product ‘up front’ charge is 1% = £10. However the adviser has charged £200 which the client pays by cheque. Therefore an honest adviser will send a note with the contact explaining that acquisition cost has been 0.5% for the product. Any residue has been invested for the client’s advantage – but there is a further 2% for the adviser making a total of 2.5%.

As far as ongoing or trail is concerned. If this is not paid by the provider, but charged (say) half annually in arrears by the adviser you then get a lower RIY (or TER) BUT the adviser still presumably makes a charge so in effect the client is not necessarily any better off. If the trail is not taken from the product this trail can then be deposited in the platform cash account awaiting investment, or there can be a standing investment instruction. Say as soon as £25 is accumulated it is invested in X on the platform

This somewhat crude explanation is not meant to be a final and definitive solution, but is merely meant to illustrate that it really isn’t necessary to impose huge extra costs onto the fund management industry by creating additional share classes and further needless complication.

It may surprise the Regulator to know that in the end the client isn’t in the slightest bit interested in how the cake is sliced – what really is of concern is how big a slice is being cut out of his cake. And that this should be clear and uncomplicated to anyone who isn’t an actuary or regulator.

Can’t anyone appreciate that simple fact?

And how will the client know that he could have bought the same fund with a different charging structure and usually a different performance.

There are already far too many versions of most funds and it is obvious that the FSA is being pulled towards the bundled obscure propositions.

As the vested interests start to flex their muscle this is probably just the first chink in the total collapse of the RDR.

Transparency to benefit the consumer - what a laugh !

This softening on the stance to accomodate the bundled (and larger) platforms is worrying. It suggests that their lobbying of the FSA opposing the unbundling of their charges is actually working.

It doesn't take much to realise that the unbundling of costs for Skandia, Cofunds etc would impact negatively on their cashflow and profitability. If it didn't then they would do it anyway and give up the charade that clients don't want or need transparency.

It would also give some credibility to their criticism of platforms such as Nucleus and Transact that run transparently. Its very easy to criticise comeone for being unprofitable if you are supported by a large parent and are not obliged (or probably able) to demonstrate profitability in your own right.

I hope that the fact that this articale is even being written is purely an academic exercise and will be discounted as there is nothing positive that can be achieved by thsi outcome. If the new rules will put pressure on the business models of these businesses then let it be so - lets not water them down purely because it could impact negatively on them.