Platforms must facilitate unit rebates if they are going to provide fund groups with the pricing flexibility required to manage their competitive position in the market, says Skandia. If platforms do not facilitate unit rebates and just host commission free 75 basis points share classes, they will prevent fund groups from being able to discount their charges to benefit investors.
Unit rebates passed in full to customers enable fund groups to flex their competitive position and improve investment returns for customers. If a platform chooses not to facilitate unit rebates, they remove this flexibility and will make funds on their platform more expensive than platforms that can facilitate unit rebates.
|Facilitating Rebates||Not facilitating Rebates|
|Post RDR AMC||75 bps||75 bps|
|Rebate to customer||15 bps||Not possible|
|End cost to customer||60 bps||75 bps|
The only way for a fund group to flex their costs on a platform that does not facilitate unit rebates would be to launch yet another whole new share class with a lower AMC, which is highly unlikely as they are understandably reluctant to issue multiple share classes which add cost and complexity to their operations.
Skandia confirms that it remains on track to deliver its new unbundled pricing model – in which fund rebates will be passed in full to customers via additional units – in Q4 2012.
Nick Dixon, marketing director at Skandia, comments:
“It will be interesting to see whether all platforms will now make the necessary investment to facilitate unit rebates. Wraps in particular have had their heads in the sand over this issue. Unit rebates, combined with greater transparency from RDR, will create healthy price competition in the fund management industry, which will benefit customers and encourage them to invest more. Some people are assuming 75 basis points will be the default active fund cost post RDR but market forces could well drive this down in stages to 50 basis points or lower by 2015. Platforms that cannot facilitate unit rebates will dis-able themselves from each stage of price reduction and will therefore present an unattractive proposition to investors.
“We are well advanced in developing a new charging structure where unit rebates will be passed back to customers in full. The Deloitte guestimate of 12-18 months is not relevant to Skandia. We anticipate our new charging structure being ready by the end of this year.”