Clients invested through Standard Life’s FundZone and wrap platforms could face higher fund charges while the company negotiates for better unbundled rates after the January deadline for temporary rebates to end passes, FTAdviser can reveal.
Earlier this month, Standard Life told FTAdviser it had introduced the temporary rebate to bridge the gap where unbundled share classes would otherwise be more expensive than their bundled counterparts, until the company could negotiate better rates.
However, the firm’s new terms and conditions state the rebate will be stripped from the relevant funds on 28 December 2013 for FundZone funds and the end of January 2014 for Wrap funds, whether a better rate has been secured or not.
An analysis of SL funds revealed that of the 736 funds currently paying the rebate, 704 of them will be more expensive when that rebate is removed compared to the fund cost for the bundled share class after the old rebate is taken into account.
Of the remainder, fund costs will be the same in eight cases, while 24 funds will actually be less expensive than their bundled counterparts.
Of the 704 funds which will be more expensive after the rebate is taken off, 230 will be more than 10 basis points more expensive, 78 are more than 20bps more expensive, and 43 are at least 30bps more expensive.
The Financial Services Authority recently said advisers should only switch clients to unbundled share classes where only where it will not increase costs to the client.
Standard Life told FTAdviser that it expects half of the funds with the temporary rebates to have their new, cheaper unbundled share classes in place by the end of the year. It said the vast majority of those that remain will see their new share classes launched by the end of March.
The firm also highlighted that any extra fund costs were due to certain fund groups using the move to unbundled to increase margins, which it said ”would appear to be against” the spirit of the FCA’s guidance.
Of the 11 funds which will experience the most dramatic price rise after the rebate is removed, 10 are Neptune funds.
Earlier this year, FTAdviser revealed that many unbundled funds could be more expensive for the client than their bundled versions based on an analysis of funds held on the Cofunds platform.
Neptune was one of the groups highlighted at the time. It explained that the additional expenses of its unbundled funds was due to the small size of the share classes and that any disparity would diminish as new units were created.
Artemis also admitted to boosting its margins, saying that competitive forces had unfairly kept margins low previously.
The single biggest price rise after SL’s rebates are turned off is on the Neptune Russia Special Situations fund’s accumulation share class, which is rising a full 1.05 per cent in its unbundled version.
The unbundled share class costs 1.75 per cent, while the bundled share class carries a fee of 2.25 per cent with a 1.55 per cent rebate, taking the effective fund cost down to 0.70 per cent.