Unit Trust Charges

HarryD

I hold M&G Recovery units (Class A) direct with M&G. The AMC is 1.65%. Hargreaves offer M&G Recovery (Class I) with an AMC of 0.8% plus the platform fee - which would total appreciably less than 1.65%.

Moving the holding to H-L would seem to be a no-brainer. Am I missing something?

Are there any mandatory changes to the way companies such as M&G show their charges coming along, or are all the RDR (etc) changes already in effect?

bowlhead99

The way companies show their charges is not going to change due to RDR. It has already changed. The generally accepted headline figure is now the OCF (onging charges forecast) of which the biggest element is AMC (annual management fee). What you're looking at there at 1.65 is the OCF (AMC of Class A is 1.50). The cheaper clean-priced Class I is 0.9 OCF (AMC 0.75).

Either way, it's not so much how they show their charges as what those total charges add up to when you do the maths. Platforms now offer clean priced funds and charge you explicitly for platform services because they can't offer dirty priced funds and take a kickback from the manager.

The types of classes available on different platforms or direct may change over time as new ones launch. Some funds have exclusive classes only available on different platforms. Conceivably M&G could come up with a super cheap class that they offered direct to customers and didn't offer to the platforms at all - although unlikely, because it's platforms that drive all their customers to them.

So yes you can go to H-L and pay 0.45 for platform and 0.9 for the fund OCF and end up at 1.35, which is better than paying 1.65% for the fund OCF direct and no platform fee.

Or you can go to Charles Stanley and pay 0.25 for the platform and 0.9 for the fund OCF and end up at 1.15%. Or you can go to Youinvest and pay 0.2 for the platform and 0.9 for the fund OCF and end up at 1.10%, etc.

Whether H-L or Youinvest or CSD or anyone else is overall the cheapest depends on whether you are adding to the holding and how often, doing a lot of sales, need an ISA or SIPP wrapper etc; they all have different structures - but your principle is sound.

Rollinghome

HarryD wrote: »

I hold M&G Recovery units (Class A) direct with M&G. The AMC is 1.65%. Hargreaves offer M&G Recovery (Class I) with an AMC of 0.8% plus the platform fee - which would total appreciably less than 1.65%.

Moving the holding to H-L would seem to be a no-brainer. Am I missing something?

Are there any mandatory changes to the way companies such as M&G show their charges coming along, or are all the RDR (etc) changes already in effect?

All platforms should be using the OCF figure now which includes a few more costs than the AMC (though still doesn't include all costs).

Strictly speaking, the OCF for the I class of that fund is 0.90% but HL, because it's a fund they push heavily, are able to offer it with a rebate of 0.10%. That effectively brings the OCF down if held in an ISA to 0.80%. Outside of an ISA the rebate is taxed so worth a little less.

As has been said, HL platform charges are about the most expensive around especially once all the other charges they make are taken into account so be sure to check them. For example, M&G will probably transfer your fund for free, but to move away from HL again they'll hit you with at least £25 for each fund you transfer from them plus £30 to close each sub-account.

If M&G Recovery is your only fund you may also want to consider either diversifying or using a more balanced fund.

HarryD

Thanks for your replies.

Interesting comment about M&G conceivably offering a new super-clean fund. More and more people who hold funds direct with companies like M&G must be realising they could save charges by moving to a platform.

You'd think M&G etc might eventually respond by lowering their charges to remain competitive. It can't cost M&G any more to have their computer send out client annual statements than it costs a platform.

Rollinghome

HarryD wrote: »

It can't cost M&G any more to have their computer send out client annual statements than it costs a platform.

That's another charge HL make: £12 to send out a paper statement and valuation. They will send out reams of advertising bumph though - for free.

I'd be surprised if M&G ever tried to be competitive on price alone: they are now far too dependent on HL and similar platforms who wouldn't be at all pleased.

bowlhead99

HarryD wrote: »

Interesting comment about M&G conceivably offering a new super-clean fund. More and more people who hold funds direct with companies like M&G must be realising they could save charges by moving to a platform.

I don't seriously think they would do that. I only mentioned it for completeness, as anything could happen to the number of classes in issue and the places that are approved to sell them.

The high cost 'bundled' funds with 1.5% management fees will die away once they stop offering them to existing customers who hold them via platforms, next year. Theoretically they could create new classes for some exclusive deals rather than just use the existing clean ones that they launched within the last couple of years. But as most of their business for retail investors is dependent on fund platforms, they would be unlikely to want to annoy those platforms by keeping an exclusive class for themselves.

There are some fund managers who also operate their own platforms which might keep an exclusive class to themselves (e.g. Fidelity), to effectively reduce the net apparent cost of their platform. But generally fund managers are not in the business of running platforms.

You'd think M&G etc might eventually respond by lowering their charges to remain competitive. It can't cost M&G any more to have their computer send out client annual statements than it costs a platform.

They would not want to give up 0.10% of management fees which goes straight to their bottom line as profit, to try to win 0.10% of 'platform running fees' where much of those fees get lost in platform operating costs.

It is much better to simply have to deal with big institutions (including the major platform groups) than have to deal with investor relations on lots of individual customers who want to give you £50 a month when you already manage £5,000,000,000. The cost of catering for individuals is sky high compared to the cost of catering for institutions who write bigger investment tickets.

HarryD

bowlhead99 wrote: »

The high cost 'bundled' funds with 1.5% management fees will die away once they stop offering them to existing customers who hold them via platforms, next year.

Thanks for the reply.

On the point above, what is the significance of "once they stop offering them to existing customers who hold them via platforms, next year"? Is something going to happen next year?

HarryD

HarryD wrote: »

On the point above, what is the significance of "once they stop offering them to existing customers who hold them via platforms, next year"? Is something going to happen next year?

I think I have found the answer.

This article suggests that by April 2016 companies such as M&G with their e.g. 1.65% inclusive charge, will have to spit this into a fund charge and a platform charge. Is that right?