Bundled v Unbundled Clean Charge Investment Funds

Published / Last Updated on 22/11/2014

Video explains the difference between bundled and unbundled investment funds and how hidden charges are now more transparent and easier to understand.


"Hello again, the subject for this video is unbundled funds, clean funds.  Clean investment funds, clean, unbundled investment funds.

Okay, you will have seen coming from the finance industry regulator, the Financial Conduct Authority, that the financial services industry is literally ‘cleaning up its act’ where we are all required to be much more transparent with what our charges are.

Now I've covered many times in videos, where you receive financial advice your financial adviser is required to quote you a transparent fee.  Some advisers still charge percentages but there are advisers where, like ourselves, we charge you, we give you real pound notes figures in terms of exactly what our fees are for a particular advice service etc.

Now, the same is happening with the investment fund industry. [So] what I mean by that is where you invest in a stock market linked ISA or if you have investment accounts and investment funds, they are also required to become transparent, to give you exact details of fees and what I will do is I will give you an example, so the example is:

You have a stock market linked ISA where the management charge is 1.5% per annum.  Within that 1.5% per annum the investment provider probably charges you a fee of let's say 0.25% or 0.3% as a platform charge, as an investment charge, on top of that there will be the fund management charge of for example 0.75% per annum 0.70%, 0 .8% per annum.  [And] then on top of that is a charge usually of around 0.5% per annum which is effectively a commission or a fee paid to the financial adviser.  So every year on your investment linked ISA or your investment account you may be getting charged 1.5% per annum, for example, on the fund which means it has to grow by 1.5% just to stand still.

Now that is not transparent and the regulator has ruled that investment houses must offer cleaner, more transparent, unbundled charging structures.  So in simplistic terms now, what will happen at the latest with effect from April 2016, but lots of the investment managers are already starting to deploy this now, is when you apply for an ISA or an investment account you may have on the table a bundled fund e.g. 1.5% per annum, 1.8% per annum, which has got all of those hidden charges built in. 

[But] they may offer you an unbundled fund choice where specifically they will state the platform charge the investment accounts charge is, for example, 0.25% per annum on top of that there is a fund charge of 0.75% per annum and then separately again is the adviser’s charge.   So for you, becoming available now, are these clear, clean unbundled funds and all I would say with that is when you're looking at investment now it's become a little bit more complex. 

There is more research to be done because you need to compare what the investment platform or the ISA provider or the pension provider or whatever it might be.  What is their charge their administrative charge?  Then on top of that, what is the fund management charge?  And then on top of that: is your financial adviser also taking an ongoing percentage charge?  So there’s lots more comparisons to be done here, lots more research to be done because adding to that, whether it's the likes of Fidelity or Co-Funds or Transact or Hargreaves Lansdown or whoever it might be. 

Whatever platform you are using, they may also be negotiating bulk investment account deals.  So for example, if you're on Fidelity or you’re on Co-Funds or you’re or Hargreaves Lansdown or whoever, they may then be negotiating a discount on the actual annual management charge of the investment fund.  I don't know,  for example, Legal and General, Henderson, Scottish Widows, Prudential, Gartmore, whoever it might be, because their platform is placing volume amounts of investment business, invested in a particular fund some providers are negotiating discounts on the fund charges.

So it's become a lot more complex but likewise a lot more transparent and you will be able to identify exactly:

How much I am I paying for the service the administration feeder platform fee?

How much I paying for the particular fund to be managed that I'd been recommended or I've chosen?

and then likewise

How much is my adviser charging me as a percentage if indeed they are?

Our firm does not charge an ongoing percentage fee.  We charge you a fee called our ‘Money MOT Service’ if you want ongoing advice from us.  So for us it's quite simple, we are looking at unbundled clean, asset classes where there is the charge levied by the investment platform, the administration fee and then the risk that the annual management charge for the fund.  [And] that way what was starting to see is, because of transparency, fund charges, overall charges on investment accounts and ISAs are starting to shrink.

So I hope that gives you an insight into what is happening where your ISAs in your investments accounts may be changing soon where your provider will write to you and say we are moving you to a ‘clean asset class’ or we are moving you to an ‘unbundled charging structure’.

If you have any questions, as ever, please do contact us. Thanks very much for watching.”

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