PlatformsApr 30 2013

Artemis admits to higher margin on clean fee shares

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Diminished negotiating power for larger platform groups under a completely ‘clean fee’ platform regime is set to make investing more expensive, after Artemis became the first fund management firm to admit that it yields a higher margin from some unbundled shares.

According to figures seen by FTAdviser, a ‘bundled’ share class for the Artemis High Income available through Cofunds last year carried an ‘annual fund charge’ of 1.25 per cent and 9bps’ worth of additional expenses, leaving a ‘total annual management charge’ of 1.34 per cent.

The unbundled share class now offered through Cofunds, which moved to a completely unbundled model last year, carried a lower annual fund charge of 0.63 per cent and additional expenses of 7bps, leaving a total AMC of 0.7 per cent.

For an investor with a sub-£100,000 investment pot on Cofunds, a 0.29 per cent platform charge is then applied on top of this. When the 0.5 per cent adviser charge - which is in line with the previously available trail - is added, the total cost of investing rises to 1.49 per cent, 15bps higher than the ‘bundled’ price.

Speaking to FTAdviser, Artemis’ sales director Tony Van Gool said the cost was higher with the clean fee share class because Artemis had previously been forced to accept a lower-margin payment of only 0.5 per cent on many funds in order to stay competitive.

Mr Van Gool said the fund manager would typically have sought to take around half of the fund charge levied through a platform, but that it was unable to do so in many case because the buying power of the larger platforms had driven its costs down.

With the publication of its platform paper on Friday, the Financial Conduct Authority told fund managers it would clamp down on charges if they were seen to be profiting from the move to clean fee share classes.

Mr Van Gool stressed that Artemis had not hiked its charges in response to the move towards clean fee prices, saying the unbundled version of this fund has been available for about five years but that advisers tended to choose the bundled version.

Mr Van Gool said: “The problem with that particular fund is because it has always had an AMC of 125bps. They used to treat it as an equity fund. They would charge an admin fee of 25bps on it.

“They always chose to buy the 125bp one because they could retain 25bps on that fund, although they could buy the clean one any time.”

Cofunds applies a tiered pricing model that means the platform charge drops to 0.15 per cent for pots of more than £1m. In this case the total investment cost would be, 1.35 per cent, marginally higher than the bundled price.

Some have suggested that this dynamic, where clean fee pricing results in individuals with smaller pots paying proptionately more, could play out on a wider basis once other platforms implement their own unbundled pricing regimes.

Tony Stenning, head of UK retail at BlackRock, said there would likely be “unintended consequences” of unbundling charges in that the “cross subsidisation” that used to exist in the market was removed, with directly-levied platform charges likely to result in lower-value clients paying more than they did in the past.

Freddie Findlater, head of adviser platforms at The Platforum, warned that shifting to unbundled would remove some of the negotiating clout previously wielded by larger platforms, and that this could lead to higher prices initially.

He said: “Bigger platforms can use their buying power to broker a better deal. The issue with unbundling of charging is that it takes away a bit of that negotiating power.

“These big guys are going to do whatever they can to make sure the costs to consumers aren’t skyrocketing so it will be an ongoing examination.”