Unbundled not Bundled!

You may be aware from media or other communications of a radical change in the way that investment fund managers’ report their charges for investing your money.

We felt it was important to explain what was happening in simple English, so here goes…….

What’s happened?
Traditionally, when you invested into an investment fund, you will pay an annual management charge that was reported to you as a single figure, for example 1.50% per annum. This is now referred to as a ‘bundled charge’ because not all of this charge went to the fund manager.

Some of the charge was paid to the adviser (as renewal commission), some to the fund manager and some to the company holding the investments on your behalf (Fund Platforms for example).

In addition, large fund Platforms could put pressure on fund managers to pay some of their share of the charge to the fund supermarket in return for the business placed with them. These were known as cash rebates.

The regulator, the Financial Conduct Authority (FCA), has now said that this is not acceptable and that this method of charging you in the future must change.

What’s changed?
The regulator has now introduced new guidelines and requires investment funds to be offered on an ‘unbundled basis’ which means that the amount that the fund manager, adviser and fund platform must communicate their charges separately.

For advisers, this is nothing new as many firms have communicated their charges transparently for some time and we now talk in terms of adviser charging (a fee paid from products) as opposed to renewal commission.

In future?
So in future the fund management and other charges will look clearer and an example is shown in the diagram below:

What does this mean for you?
Very little, although it does allow you to explicitly identify what the various parties are being paid.

In time, this may put pressure on fund managers to reduce their charges.

However, we would point out that you won’t typically be paying any more for fund management than you were under the old ‘bundled charging’ system.

If you would like to know more, please contact us with no obligation on 01626 833225.

The above comments do not constitute financial advice and you are advised to obtain appropriate professional advice before proceeding further.