The 0.75% ‘clean fee’ share class is to launch later this year on a limited range of Fidelity funds, but may be rolled out further in due course.
Ben Waterhouse, head of UK retail sales at Fidelity Worldwide Investment, said demand had driven the decision to offer discretionaries an unbundled share class.
"Private client managers, stockbrokers and fund of funds said they would prefer clean access to share classes and they do not have the same adviser charging needs as the IFA market has, nor are they as closely linked to platforms as advisers.
"The platform-using community are still seeing the need for a rebate share class," Waterhouse added, and for this reason Fidelity will continue to offer its 1% share class on platforms until there is final guidance on rebates from the FSA.
It is assumed this will be the share class most IFAs will buy because the 0.75% share class will have a £500,000 minimum investment level.
Fidelity already had a 1% share class available and said it is trying to utilise its existing offering rather than introduce a lot of unnecessary cost and complexity before the rebate issue is resolved once and for all.
Most other funds houses that have launched an unbundled share class have done so across their product ranges and made it available to all clients.
Fidelity’s conundrum
For this reason others are sceptical of Fidelity’s explanation: "Some fund groups have a bit of a conundrum in that their ‘clean’ institutional share price was 1%. They have very large buyers paying a price higher than 0.75%, so they cannot offer retail clients less than institutional clients," said the head of UK retail at another fund house.
This means some fund houses are stuck between appeasing large customers and being seen to enter into the spirit of transparency required by the FSA post RDR.
Institutional investors have been known to argue that because they invest such large sums they should be rewarded with lower charges, but Portfolio Adviser’s source maintains that retail investors will end up paying more because they usually have to access funds through platforms, which will incur a fee.
In the case of a platform such as Cofunds, which has moved ahead of the regulator and offers an optional unbundled pricing model which will become compulsory in January 2013, this fee will be explicitly stated.
But until the FSA’s proposed ban on rebates is actually brought in (January 2014 is the earliest likely date) other platforms can still host the 1% share classes with an approximately 0.25% rebate included.
Confusion for Cofunds
In its latest Perspectives letter, Verona Smith, head of proposition at Cofunds, said: "Unbundled charging supports an industry-wide move to introduce clean fee share classes where the only built in cost is that of fund management.
"As at mid-April 2012 we have spoken to all fund groups on the platform (over 90) and virtually all are on course to give us a new share class by January 2013."
Apart from Fidelity that is.
The full range of onshore and offshore Fidelity funds is available on Cofunds and Fidelity’s Waterhouse said the platform had intimated it would like to offer an unbundled share class for these funds.
For the time being Fidelity will not allow Cofunds to do that, although Waterhouse does not rule out broadening the clean share class to include platforms over the next 18 months.
The question is, with Fidelity only offering a 1% share class on platforms, how will Cofunds continue to uphold its unbundled pricing promise? Will it refuse the rebate and put its own charging on top of the 1% charge thereby making Fidelity’s funds more expensive than others? These are questions as yet unanswered. Use the box below to share your views…
