There has been much debate on bundled and unbundled investment charging structures. But what exactly is the key difference between the two options.
Bundled structures consist of the client paying one payment for their investment. This cost pays for the fund TER (Total Expense Ratio), and is made up of a remuneration fee to the adviser, and a charge to the platform and fund manager. The main advantage of a bundled charging structure is it’s simplicity in terms of the customer knowing what the total cost would be to them at the outset. However, the precise amounts the adviser, fund manager and platform are actually paid is not explicitly shown; this often the results in the customer not being fully informed of the cheapest brokerage option available when considering buying investments.
With unbundled structures, all the costs paid to the adviser, the platform and fund manager are clearly broken down for the client. Basically, the fund manager gets paid the TER minus the rebates they have negotiated with the platforms. These rebates are then paid back to the client. From here, the platform provider charges a specific platform charge to the client, in addition to the adviser agreeing a fee directly with the client.
Despite the client having more charges to digest, it does allow more transparency for them then to make a more informed financial decision on who to use to purchase their investment. With the implementation of RDR at the turn of the year, unbundled investment structures are in line with the FSA’s consumer protection strategy, whereby charges are made clear up front as a way of building greater consumer confidence and trust in the financial services sector.