H-L charging structure

Rollinghome

koru wrote: »

The O class is widely available, eg, from Alliance Trust Savings, Interactive Investor. However, I agree that it is extremely unlikely that this fund would be promoted by HL if the I class did not exist.

Yes, would have been clearer for me to have said that the only version available through HL is the I class. The O class is also still available direct through CF as before without any fees (other than the standard dilution levy) but only to pre-existing investors and not to new investors.

Will be interesting to see how it and similar funds are promoted when commission payments end and what effect the FCA's decision to still allow post-RDR payments to platforms for advertising will have.

SnowMan

Interesting article on IFA on-line

FCA asks Hargreaves to reveal details of share class negotiations

gadgetmind

Oh what a tangled web we weave. When first we practice to deceive.

bigadaj

gadgetmind wrote: »

Oh what a tangled web we weave. When first we practice to deceive.

First?....

gadgetmind

bigadaj wrote: »

First?....

Yeah, OK, you've got me there. They are rather well practised, but that's not exactly unusual for the financial industry.

Sadly, the price of using an ISA or SIPP wrapper is having to work with these platforms, all of which seem to be trying to extract £1000s pa from our pots in exchange for running a few web servers and claiming tax back from HMRC.

If only you could have an ISA/SIPP wrapper around paper certificates!

dunstonh

A bigger platform than HL has also been lobbying fund houses. So far without success because once you offer it to one, the others will want it too.

grey_gym_sock

gadgetmind wrote: »

If only you could have an ISA/SIPP wrapper around paper certificates!

i'd be happy to fill in a few HMRC forms and run a few web servers myself, if that would let me qualify

SnowMan

Consider a thought experiment:

Consider the pre platform RDR world. Platform A says to fund manager C and fund manager D we will promote your fund as long as you pay us 0.5% pa commission. Fund manager C says yes, fund manager D says no. Only fund manager C’s fund is promoted within platform A’s top 50 funds and attracts lots of money relative to fund manager D’s fund which isn't promoted.

Platform RDR comes in.

A new platform B sets up post RDR and charges a 0.25% pa platform charge on all funds. Platform A then charges a 0.5% pa post RDR platform charge.

Now suppose platform A says to the same two fund companies we will place you in our top 50 funds list provided that you offer us a 0.25% pa cheaper clean share class than you offer to platform B. But if you don’t there is very little chance you will appear in our top 50 funds list. Fund manager C says OK we will give you a 0.25% pa cheaper share class than we offer to platform B and fund manager D says no you will get the same share class as we are offering to platform B. Fund manager C’s fund appears in platform A’s top 50 funds and attracts lots of money relative to fund manager D’s fund that doesn’t appear and isn't promoted.

So what has changed pre and post platform RDR? Arguably nothing.

Now it may well be that this is within the letter of the guidance of post platform RDR. But what would you do if you were the FCA and you had said in your guidance?

One of the main outcomes of our rules will be to restrict the influence that product providers and platforms have on the promotion of one fund over another. This outcome is in line with our broader Retail Distribution Review (RDR) objective of limiting any adverse influence product providers have on distribution and aligning the interests of intermediaries to those of their clients more closely

So you would expect the FCA to take an interest in any negotiations between platforms and fund management companies concerning the offering of preferential share classes to satisfy themselves that this sort of unsatisfactory outcome wasn't happening.

grey_gym_sock

the FCA's aims include restricting the influence of platforms over promoting funds. but they don't seem to have a problem with bigger platforms negotiating cheaper share classes than smaller 1s. so long as the benefit of the cheaper classes will go directly to the customer, not to the platform.

dunno how they will try to draw the line.

as you suggest, in some ways this looks like the same shenanigans with the deck chairs rearranged. but there are some positive effects.

1 is that platform A starts offering funds from fund manager V, when they used not to because V doesn't pay kick-backs to platforms.

there may be more focus on, and pressure to reduce, the costs of both funds and platforms, when they are better disclosed. we're certainly not there yet - everything is even harder to understand because we're in a transition period!

the standard 1.5% AMC seen in so many actively managed funds is surely a sign of a market in which suppliers don't feel the need to compete on price. perhaps more transparent pricing will help to change this.

SnowMan

I agree with all that.

For the avoidance of doubt I am strongly in favour of the RDR changes.

The increased transparency will I think, as others have said, make it very difficult for a platform to get exclusive rights to sell a super clean class. Under the current system a platform won't necessarily know what commission that rival platform is receiving but under the clean system it is all in the open so as soon as one platform gets a super clean class, the others will demand that super clean class too.

However that won't stop platforms trying to get an exclusive super clean class, and my comments were really aimed at the potential consequences and bias if that were to happen, illustrated by using a simplified and slightly unrealistic example, and hence a possible explanation right or wrong as to why the FCA might be interested in the negotiations.