Divisions emerge on post-2012 fund charging

Investors could be faced with a plethora of fund charging models post-RDR as well as higher overall costs and ‘premium’ prices for a top tier of better performing funds or specialist mandates.

Fund groups are working on developing pricing structures for their ranges to meet requirements post-2012. However, divisions are opening up between providers and platforms on how best to meet investors’ demands.

Momentum is also building behind a sliding charging structure for funds based on performance, with higher alpha products priced at a premium, leading to greater differentiation between funds.

Many industry experts already forecast costs will increase for consumers post-RDR. They say the traditional total annual management charge of 1.5% will be scrapped and overall charges may rise nearer the 2% mark. Fund groups currently take around 0.75% with the rest split between platforms and advisers.

In many cases, commission will be taken out of the equation but investors will still have to factor in varying platform charges, possibly higher advice costs, as well as a spectrum of prices across a provider’s range and between similar mandates from rival fund houses. This will make effective comparisons increasingly difficult.

Simon Ellis, L&G Investments' managing director, said: “I expect the combination of fees from fund providers, platform, adviser and, in many cases, discretionary fund manager will exceed 2% at the start. I question if this is sustainable as most people are predicting a low return environment. Whether funds remain at 2% AMC will be answered within two years of RDR."

Platforms are also making different requirements for fund groups, with Cofunds requesting the lowest possible ‘clean’ share class, without commission or platform charges, while rival platform giants FundsNetwork and Skandia will allow greater flexibility.

Continuing uncertainty over whether platform rebates will be allowed post-RDR is also adding to the confusion.  

Schroders has already said it will offer a ‘clean’ share class with around a 0.75% AMC alongside its existing share classes.

Investment Week can reveal Standard Life Investments (SLI) is planning to offer three share classes for investors in Q1 next year: the existing retail class, institutional and a clean ‘Z’ class. 

Jacqueline Kerr, head of UK wholesale at SLI, said: “Post-RDR many managers will look at what they can deliver.

“There are obviously lots of rumours advisers will increase their charges – but we do not know if this will be substantiated or whether the platforms will seek to put up their charges.

“One thing we know for sure is pricing will become transparent. I am sure there will be some funds that will go up in price and some will go down depending on what their market positioning is.

“We have a number of funds priced above the 1.5% AMC, such as Ed Legget’s UK Unconstrained fund at 1.8%, but we have a number of funds, such as the MyFolio range below 1.5% at 1.3%.”