Skandia: Clean share classes 6bp more expensive on average

Clean or unbundled share classes are on average six basis points more expensive than their bundled counterparts before any discount is applied, research from Skandia suggests.

The wrap platform compared the bundled range of approximately 1,200 funds with the average price of its unbundled or clean funds, and found a price difference of six basis points.

It found that 635 clean share classes would be worse off than their bundled counterparts.

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The platform provider noted that in order to mitigate this it negotiates a preferential or ‘superclean’ rate with fund groups to secure an average discount of 10 per cent.

The discount is passed on to customers in the form of a unit rebate, which has so far escaped the ban imposed on cash rebates by the Financial Conduct Authority.

According to a statement from Skandia, the analysis suggests bulk converting customer holdings to unbundled share classes could lead to poor outcomes for customers if they end up paying more where there is no discount.

In a guidance consultation published earlier this month (23 October) the Financial Conduct Authority said it expects platforms not to automatically convert clients to clean share classes if it would result in higher costs.

The company claimed fund charges on clean classes are typically 0.75 per cent, while those for bundled share classes are often lower.

This claim may be borne out somewhat by the example of Artemis, which admitted taking a higher margin on clean fee shares. Artemis told FTAdviser it had previously been forced to accept a lower-margin payment of 0.5 per cent on many funds in order to stay competitive.

Recent research from James Hay Partnership also found that one in three clean funds are more expensive than their bundled counterpart. James Hay had previously said it would only transfer clients over to unbundled share classes where the total cost of investing would be cheaper in the unbundled than the bundled version.

Michael Barrett, platform marketing manager at Skandia, said: “It is very clear that the move to unbundled share classes cannot be a ‘one size fits all’ exercise without risking the exact customer outcome the FCA is seeking to avoid.

“Clients’ circumstances need to be looked at on an individual basis and platforms must do what is in their power to create a like-for-like or better outcome.”

He added that Skandia will next month launch a ‘total cost of ownership’ tool which will show the costs of investing in its unbundled share classes compared to its historic charging options.