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Standard ‘clean’ funds are 6bps more expensive than bundled, says Skandia

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Skandia has calculated that standard “clean” share classes are, on average, six basis points more expensive than their bundled equivalents if a discount is not applied to the clean share class.

Skandia compared the bundled range of approximately 1,200 funds on its platform with the standard clean fund price offered by fund groups. Skandia mitigates this price difference by negotiating a discount (on average 10 per cent) on its unbundled share classes to create better value for customers which it now offers on over 600 funds. 
 
Currently this is via its unit rebate mechanism but preferential share classes (superclean) will be added when they become available.
 
The analysis suggests that bulk converting customer holdings to unbundled share classes could create a detrimental position for a number of customers if there is no discount mechanism is place. Furthermore, Skandia believes that for comparisons to be clear, it is important that the TER, including any rebate that is available, on both the bundled and unbundled share class is used for the price comparison. This is especially important for wrapped assets, where any rebate is free of tax.
 
The term clean is used to describe share classes where the fund charge is separate from the advice and platform charge, and without a unit rebate applied. These are typically priced at 0.75 per cent, whereas the fund charge element of a bundled share class, including the platform and advice charge, is often lower.
 
Michael Barrett, platform marketing manager at Skandia, says: “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. That’s why as well as offering preferential share classes as they become available, we continue to offer further discounts on the standard 0.75 per cent share class covering over 600 funds and we will continue to negotiate discounts wherever possible. Currently this equates to discounts on 57 per cent of our assets under management.
 
“We recognise that advisers need more help in explaining the difference in costs between bundled and unbundled share classes to their clients. Next month we will be launching our ‘total cost of ownership’ tool which will show clearly the costs of investing in our current unbundled share classes compared to our historic charging options. This will allow an accurate, individual comparison between a bundled and unbundled share class, using the TER net of any rebate, as well as accounting for any tax that might be due in unwrapped investments.”

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