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New FCA ruling

Fund managers being forced to explain charges

Richard LeesonInvestment fund managers are being forced to review the amount they charge investors under a rule change known as the “sunset clause”.

The Financial conduct Authority (FCA) edict comes into effect in April when “rebates” paid by fund managers to investment platforms will be banned.

At present an investment fund may charge, for example, 1.5% a year, but half of that (0.75%) might be paid to the platform. This means that from April next year the charge will drop by 0.75% for someone invested on a platform.

Fund managers will then have to justify why investors who came directly to them are paying 1.5% a year whilst the same funds can be bought at half the price on a platform.

Under current regulations fund managers are required to “treat customers fairly”. To comply with this requirement means that they may be forced to explain to customers the impact of the “sunset clause”.

The regulator also says consumers should not face unreasonable barriers to switching between product or provider and that communications should be “clear, fair and not misleading”.

Put together, these requirements will force fund managers to address the difference in charges and at least explain why they are different.

There are already platforms offering what they call “clean” share classes where the rebate is already taken out. Switching to those funds will secure the lower charges now. With some fund managers sitting on hundreds of millions, if not billions, of pounds the cost to them could be immense.

If you are unsure if you are affected, contact your provider or financial adviser.

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