The full cost of funds’ share classes should dictate whether bulk conversion to unbundled shares is appropriate, according to Nucleus chief executive David Ferguson.
Mr Ferguson is the latest platform chief to speak out on the issue of share class conversion as a rift threatens to develop in the sector between those platforms which are planning to cut off trail and rebates within the next few months and those who are opposed to this move.
Mr Ferguson described the process of converting funds from bundled to unbundled shares as a “hugely complex transition”.
If advisers were left to make the changes themselves, he said, it would create millions of individual conversions - volumes which fund managers and their administrators “are not set up to handle”.
But if platforms make the changes - as Alliance Trust Savings, Ascentric, Novia and Standard Life are currently in the process of doing - there is a risk of some clients being worse off due to the difference in the total expense ratio, or ongoing charge, of different share classes.
A fund’s total expense ratio is likely to fall slightly as the fund gets larger due to economies of scale reducing the impact of operating expenses on the fund’s investors. This means that newly-launched clean fee share classes may start out more expensive than the equivalent bundled share class as they have less money invested.
“It’s easy to compare the ‘dirty’ annual management charge [AMC] minus the rebate against the clean AMC, and form some kind of view, but the meaty issue lies in the additional fund expenses,” Mr Ferguson said.
He emphasised that converting from bundled to unbundled share classes was Nucleus’s preferred option, but added that the platform would “do all we reasonably can to ensure clients don’t pay more in fund fees than they are at present”.
Mr Ferguson said: “Where the client is demonstrably no worse off, then it is perfectly reasonable to continue [with bulk conversion].”
His comments follow Skandia’s announcement this morning that it would not be forcing bulk conversions on advisers and investors.
