Standard Life has come out fighting over criticisms levelled against it regarding its bundled-to-unbundled conversions as the firm continues its push to move over to an entirely clean fee model.
Last week FTAdviser revealed that many unbundled funds on Standard Life’s two platforms will be more expensive than their bundled counterparts, in some cases due to a temporary rebate the firm has negotiated ending by the end of January.
Of 736 funds with a temporary rebate in place to offset a higher fund group margin on the clean share class, 704 will be more expensive when this is removed. Some 230 will be more than 10 basis points more expensive, while 78 are at least 20bps more expensive.
Of 1,159 unbundled fund share classes on Standard Life’s platform which are not currently subject to the temporary rebate, 264 are more expensive than their bundled counterparts, compared with 251 that are cheaper. Some 121 will be more than 10 basis points more expensive, with 71 at least 20bps higher.
Responding to my queries, Standard Life head of UK platforms David Tiller revealed that half of the funds subject to the rebate - and a quarter of funds overall - will have new ‘superclean’ share classes in place by the end of the year. The majority of the rest are projected to follow by the end of March.
Mr Tiller went to on drop the blame for any rises squarely on the shoulders of fund groups looking to plump their margins, brazenly ignoring guidance from the regulator that clients should not be made worse off by switching to clean.
As I discovered when I arrived at the office this morning, Mr Tiller has since posted a blog addressing the issue in which he launches a more trenchant defence of Standard Life’s pricing and a stronger attack on ‘opportunist’ rivals looking to score cheap points at its expense.
Among other things, he says: “During the transition process to become the first fully unbundled clean platform it is inevitable that opportunists amongst our competitors and the media will challenge our approach.
“Given the scale and operational complexity of the conversion to a clean model it is easy to criticise through selective use of the facts.”
Mr Tiller elucidates on his previous comments to FTAdviser in the piece, saying the impact of discounted options not being available on some funds is negligible and far lower than the tax that would have been paid on bundled funds.
“Half of the assets carrying a discount today are being converted to discounted share classes in the next two months. If the transition period for the remaining half stretched to three months, the impact spread across an average clients’ portfolio would be less than one hundredth of a percent (0.01 per cent or one basis point).”
“On the other hand, had we not started this process we would already be collecting basic rate income tax at source on rebates from unwrapped mutual fund investments. The rebate income tax liability equates to a total of 0.30 per cent per annum (30 bps) for a higher rate tax payer in a typical [pre-Retail Distribution Review] 1.50 per cent bundled AMC fund.”
Overall there are two main thrusts of his argument: that SL is well on its way to converting all funds to new cheaper bespoke share classes, and that the rebate tax would be more damaging to clients.
As we stated in our piece, Standard Life is expecting to have new share classes in place by the end of Q1 for around 95 per cent of funds.
The platform is negotiating hard and has secured the temporary rebate from a number of groups, but clearly getting the final deal done is proving more problematic. Remember that some fund groups have already explained that the higher margins on their funds are fairer.
Mr Tiller concludes his blog by pointing out: “Any exercise of this scale and complexity is not without risk, but I would like to be clear that the risks and costs sit with us, having engaged with the regulator throughout.”
I have to admit that I credit Standard Life’s transparency on pricing - after all it did not have to make the prices readily available and it is not benefitting financially where customers are paying more.
The questions it asks of fund groups are also pertinent. I will be making my own enquiries to fund groups asking why they have taken this opportunity to pocket more client money.
