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Providers have gone in too cheap with RDR shares: Bentley

Skandia warns some fund managers may “regret” launching clean fee shares that charge just 0.75 per cent as margins could be hit.

By Nick Reeve | Published May 18, 2012 | comments

Skandia’s Graham Bentley has warned that many fund providers have gone in too cheap in offering RDR-ready fund share classes charging fees of 0.75 per cent.

Mr Bentley, head of proposition at Skandia, said some firms were already “beginning to regret” the decision to charge so little.

Mr Bentley said: “Instead they should [charge] 1 per cent and then price individual funds accordingly,” he said.

“Managers might want to drop the price on poor performing funds, for example, and it’s much easier to do that with [a charge of] 1 per cent.”

Andrew Power, lead RDR partner at accountancy and audit firm Deloitte, said: “[Mr Bentley’s] idea would work in a closed economy, but I think market pressures will still force fees down.

“There may also be a squeeze on higher-cost share classes from the move towards passive funds.”

Robin Stoakley, managing director at Schroders, said the company had accepted lower margins on its products for some time in Europe, and was prepared for the same in the UK to remain competitive.

“There is a possibility of margins being squeezed post-RDR anyway,” Mr Stoakley said.

“It comes down to the quality of the product – good products will maintain margins better than poorer products.”

Many fund managers have now added RDR-ready share classes to their entire fund range, ahead of the implementation of the RDR at the end of the year when the current norm of carrying bundled adviser rebates hidden in annual management charges (AMCs) will be banned.

Existing share classes typically charge 1.5 per cent, with 0.25 per cent going to the fund platform that hosts the assets and as much as 0.5 per cent going to the financial adviser that recommended the investment.

The majority of firms which have now launched RDR-ready share classes have opted to remove both of those bundled payments, even though it is currently only clear that adviser rebates are being banned.

Invesco Perpetual and MAM Funds have opted for RDR share classes with AMCs of roughly 1 per cent, which removes adviser rebates but keeps payments currently paid to platforms.

If platform payments from fund managers are outlawed by the FSA, the companies would be able to keep the 25bps as extra margin – something Mr Bentley said would allow them greater flexibility to charge premiums or give discounts.

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