Another common assumption when discussing RDR is that charges for the end investors will decrease. But what if conversely, the archangel of transparency leads to higher costs for investors and allows fund houses to hold on to a greater portion of the fee than before?
I am talking about the unbundling of charges and the potential that this could line fund houses’ pockets – something which has not really been considered.
With the current system, the headline AMC for most unit trusts is 150bps and broadly speaking that will include a 25bps charge for the platform (if one is used) and a 50bps charge for advice, rebated to each of the parties.
If a platform is used by the investor directly, it will receive the full 75bps in a rebate.
As they stand, the FSA’s post-RDR rules have pretty much ironed out the adviser element of the rebate with the exception of some remaining fuzziness around trail and legacy commission.
But the regulator is yet to publish its final rules regarding platform rebates and whether they will be allowed, something it was supposed to do before Christmas and which is now expected in Q1.
Some platforms have moved ahead of the game, Cofunds for example has made it clear its strategy will follow a fully unbundled service. But others are awaiting clarification from the FSA to inform the changes they will make to their systems.
So where do the fund groups and their increased margin shares come into this?
A bigger slice of pie
One large platform provider said recently that if rebates are still around in some form or another post-RDR, the advent of transparency will mean fund groups are pressurised into agreeing a flat rate with all platform providers.
Previously platforms have been able to use their size and market position to haggle with fund groups and get a larger rebate, which they may or may not have passed onto the end investor.
For example, Standard Life might have been able to command a rebate of 90bps, leaving the investment product provider with 60bps, while its competitors will have come to respective agreements with the product provider which were either higher or lower depending on their relative bargaining power.
This was fine in the opaque days, but is unlikely to continue in the days of transparency as it would show favoured status for some platform providers over others.
If we assume then that a flat rate will be rebated to all platforms, say 75bps, and the fund house then keeps 75bps of all AMCs, the fund house will now be giving Standard Life a lower rebate than before and keeping the extra 15bps for itself.
This won’t just amount to pocket money either, not when you consider the size of the client base of Standard Life and multiply those 15bps hundreds of thousands of times over.
In response to such a charge, James Rainbow head of UK marketing at Schroders, said it makes some pretty major assumptions. Firstly, it assumes all fund groups are cutting deals with platforms, which he said is not the case at Schroders, and secondly, it assumes every fund provider is going to move straight to 75bps share classes.
Schroders was one of the first groups to come up with its RDR-friendly offering comprised of a "Z share class" across its product base, which is clean-fee and has an AMC of 75bps.
JPMorgan, Cazenove and Rathbones have also made a move recently to shape their post-RDR offerings.
Some have questioned whether this is a bit early, particularly given the delay from the FSA on rebates, and suggested fund houses might be setting the price for their services too low, especially if they see their offering as one of quality and good performance.
Following what has seemed an ever-stretching countdown to the implementation of RDR, there’s no denying the start of 2012 has precipitated a re-emergence of debate.
But in our eagerness (maybe not?) to check off the days, weeks and months until it is upon us it is crucial we don’t stop asking questions about the implementation and impact RDR will have: assumptions or no assumptions.
