OpinionMay 3 2013

Platform fallout continues, interest-only worries abate

Search sponsored by

This week we continued to see fallout from the Financial Conduct Authority’s platform paper published last week, with the dreaded Retail Distribution Review spectre of “unintended consequences” once again coming to the fore.

Mind the margin

While the FCA stated in the paper it would be watching out for fund managers cashing in on the rules by bumping up margins, Artemis admitted to FTAdviser that it is already taking a higher margin on some clean fee share classes. M&G conceded it’s six-year old clean fee share class is also more expensive than its bundled counterpart.

The news came out following a report published by FTAdviser revealed the total cost of investing for low-value clients through Cofunds had risen after it moved to unbundled shares. Cofunds new model means clients need to invest over £250,000 in order to fall below previous pricing levels.

It makes me wonder: before cross-subsidy became such a profane term in the eyes of the regulator, were lower-end investors simply shielded from the real cost of investing, or is what we’re seeing a reflection of financial services companies growing margins where they can?

Either way, in a regulatory environment where the government is increasingly broadcasting the importance of saving and the need for advice, this trend of rising prices for lower-end investors one might see “everyday” investors doing otherwise.

Muddying the ‘clean’ waters

Skandia threw a spanner in the works of the new nomenclature this week when it announced the launch of “unbundled share classes with rebates”, as it argued that almost nine in 10 clients would be worse off with the absence of rebates.

What do we call these half-way house share classes? Instead of ‘superclean’, how about ‘pseudo-clean’?

Jibes aside, given the data relating to the cost of investing increasing and the lack of clarity on how superclean will work, in some respects they’ve stolen a march by claiming they can reduce costs for Isa and pension investors by up to 6bps.

Interest only

After Martin Wheatley called interest-only mortgages a “ticking time-bomb”, the mortgage sector’s eyes and ears were waiting to hear the results this week of the new-generation regulator’s review. As it turned out, this was a bit of a damp squib.

Despite all the hype, which I’ll admit I contributed to, the FCA simply revealed that actually nine out of 10 per cent of customers with such a mortgage have a repayment plan in place.

But don’t pop the corks just yet. The FCA also revealed that more than a third of borrowers with a loan maturing before 2022 could face a shortfall of more than £50,000, while close to half of all interest-only borrowers overall might be facing a shortfall.