PlatformsApr 15 2013

Platform View: Vested interests overlook needs of clients

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The decision by HM Revenue & Customs (HMRC) to impose income tax on rebates for investments held outside of tax wrappers has led to stronger calls from some of the smaller platforms for the use of clean share classes at a consistent level across all platforms.

I believe this is based on their own vested interests and is overlooking the needs of financial advisers and their clients.

The ability of platforms to offer different fund prices based on their size and market position is necessary for a healthy market with competition, and ensures fund prices can be lowered for the benefit of investors. Losing this pricing flexibility could lead to poor outcomes for customers.

A standardised clean share is only in the best interests of platforms that don’t have the size to negotiate rebates below the standard annual management charge, say 0.75 per cent for an equity fund, or platforms that are unable or unwilling to administer unit rebates to benefit their customers.

The notion that all clean share classes should land at an annual management charge of 0.75 per cent with no room for negotiation is clearly not a healthy market. Additionally, the fact that these share classes are being positioned as ‘clean’ by some platforms is only creating extra confusion.

At Skandia we will continue to focus on achieving the best possible fund prices. HMRC’s decision does not change this, it will just change the way those net fund prices are achieved.

We believe the best way of achieving competitive costs is by moving to a clean share class with a lower annual management charge, which still pays a rebate where possible.

This will allow us to maintain the current net fund prices and minimise the tax liability for customers on the rebate.

Facilitating unit rebates lets platforms serve their customers by seeking lower net fund costs. Also should fund groups want to, rebates give them an easy way of flexing the price of their funds to improve their competitive position.

Additionally, we will continue our discussions with fund groups about launching a preferential share class to ensure that those using the Skandia platform always receive the best net fund costs available in the market.

This strategy will enable advisers and their clients to select the share class most appropriate to their individual circumstances, including their tax status.

We cannot do anything about the fact that rebates on unwrapped investments will now be taxed, but we certainly do not intend to stop trying to achieve competitive fund costs.

In my opinion, the focus of platforms should remain on securing the optimal outcome for advisers and clients.

This means delivering high quality service, technology that works, a wide range of product options and the best choice of investment solutions, all at great value.

To deliver this value they should use their scale to negotiate cheaper fund prices if they can, after all a market does not operate efficiently when prices are fixed.

Peter Mann is UK managing director at Skandia