Fund platforms Alliance Trust Savings and TD Direct Investing are making a stance on the types of funds they provide, providing 'clean' funds, which have no built-in trail commission.
While this means they offer fewer funds than other rival platforms, they argue that investors will be better off in the long run and enjoy greater transparency. Most other fund platforms continue to offer commission-paying fund share classes.
TD Direct has introduced an explicit 0.35 per cent platform fee on funds paying trail commission of 0.5 per cent or more, but has waived this until August for investors buying its more than 730 commission-free funds. In the meantime, the platform is effectively free for the new clean share classes.
Following the Financial Services Authority's Retail Distribution Review (RDR), which came into force at the start of this year, fund providers can no longer pay commission to financial advisers.
As a result, some fund management companies now offer share classes on their funds that do not pay commission and have much lower charges. And ATS and TD only offer these to their customers, despite the fact that RDR at present does not prevent fund management companies from continuing to pay commission to platforms. This means ATS offers around 1,200 to 1,300 funds as opposed to the 1,500 it used to. TD hopes to raise the number of funds with commission-free share classes to 2,000 this year.
ATS has dropped fund providers, including Prudential, Insight and Ecclesiastical. The change does not affect ATS's finances because it already rebates all commission to its customers.
Existing ATS investors who will be better off or no worse off in the commission-free share classes will be transferred to these during the first half of this year, meaning they will pay a lower charge upfront rather than a higher charge and then wait for up to six months for the commission to be rebated.
Investors who will be worse off in the new share classes will remain in the existing ones, but will be unable to add any new money to them.
Funds dropped from the ATS platform are unavailable for future investment, so investors with direct debits into these need to select a new option. Existing investments are unaffected.
However, ATS expects to increase the number of funds it offers to around 1,500-plus again by the end of March, because it is in the process of adding 12 new providers who offer commission-free share classes. These are believed to include Seven Investment Management.
Fund groups available on Alliance Trust Savings
| Group | Annual management charge (%) |
| ABERDEEN | 0.5 |
| ALLIANCE TRUST INVESTMENTS | 0.45 |
| ALLIANZ GLOBAL | 0.75 |
| ARTEMIS | 0.75 |
| AVIVA INVESTORS UK | 0.5 |
| BAILLIE GIFFORD | 0.65 |
| BARING | 0.75 |
| BLACKROCK | 0.75 |
| BNY MELLON | 0.75 |
| ELECTRIC & GENERAL INVESTMENT FUND | 0.30 |
| F&C | 0.75 |
| FIDELITY | 1.00 |
| FIRST STATE | 0.85 |
| FRANKLIN TEMPLETON | 0.75 |
| HENDERSON | 0.75 |
| HSBC | 0.10 |
| IGNIS | 0.75 |
| INVESCO | 1.00 |
| INVESTEC | 0.75 |
| JO HAMBRO CAPITAL MANAGEMENT | 0.75 |
| JPMORGAN ASSET MANAGEMENT | 1.00 |
| JUPITER | 0.75 |
| KAMES | 1.00 |
| LEGAL & GENERAL | 0.75 |
| M&G | 0.75 |
| MARITN CURRIE | 0.75 |
| NEPTUNE | 0.75 |
| PREMIER PORTFOLIO MANAGERS | 0.75 |
| SARACEN | 0.75 |
| SCHRODERS | 0.75 |
| THAMES RIVER MULTI-CAPITAL | 0.75 |
| THREADNEEDLE | 0.75 |
| TROJAN | 1.00 |
| TURCAN CONNELL | 1.25 |
| UBS | 0.75 |
| VANGUARD | 0.30 |
Source: Alliance Trust Savings
