The decline of Fundsupermart
The beginning
I have invested in unit trust funds since 2000/2001 and have a Fundsupermart account (a distributor of unit trust funds) for about 9 years already, almost since the day they came into existence. Note that Fundsupermart since day 1 has always been an advocate of regular saving for the medium to long term (rather than speculation).
The only explicit charge that I paid (until now) was the sales charge i.e. a certain % of my subscription which is levied only once. Other charges are implicit within the unit price, which is the same for all investors, big or small, as it is determined by the fund manager.
The change
However, in a recent announcement, they are decreasing the sales charge quite significantly but introducing a platform fee, which is an ongoing fee charged as a % of amount of assets invested.
Any normal investor would know that this is detriment to him as such ongoing fee will very soon offset whatever saving that's gotten from the reduced sales charge. In fact, someone showed via a simple calculation, with reasonable assumptions, that after 3 years, amount of ongoing fees would offset the reduction in sales charge.
This could be good news for speculators or short-term investors but most of us are investing for at least the medium-term (i.e. at least 5 years). Also, such ongoing fee will also penalise those of us who have already paid the old sales charge and so we are penalised twice. Such fee reduced our investment rate of return, on a compounding basis, with no appreciable benefits to long-term investors.
Despite pleas to scrap this platform fee and alternative suggestions to generate revenue (e.g. start charging for fund switches, savings on IT side, reduce number of free magazines etc), both the GM and CEO are adamant in sticking to this new pricing structure. In fact, the CEO stated that such structure exists in US, UK and Australia. Yet, people who are familar with US and Australia contradicted him by saying that it is cheaper to invest in unit trust funds in these countries and it's even without such ongoing fee.
The decline
Their main competitors are Dollardex, AvivaDirect, POEMS and Finatiq. I know for certain that the first three do not have such structure (and in fact, Dollardex, in a e-mail response, said that they have no such plan). They are definitely not small fries in the industry either, having existed for between 5 - 10 years. Moreover, transfer of invested funds is free. Thus, it is no brainer that many of us are transfering our investment out of Fundsupermart to its competitor.
Of course there is a chance that the other online fund distributors may follow Fundsupermart's new pricing structure in future but until then, there is no harm moving to them. At worst, it's bye-bye unit trust funds and hello alternative investment instruments (likely ETFs).
I have invested in unit trust funds since 2000/2001 and have a Fundsupermart account (a distributor of unit trust funds) for about 9 years already, almost since the day they came into existence. Note that Fundsupermart since day 1 has always been an advocate of regular saving for the medium to long term (rather than speculation).
The only explicit charge that I paid (until now) was the sales charge i.e. a certain % of my subscription which is levied only once. Other charges are implicit within the unit price, which is the same for all investors, big or small, as it is determined by the fund manager.
The change
However, in a recent announcement, they are decreasing the sales charge quite significantly but introducing a platform fee, which is an ongoing fee charged as a % of amount of assets invested.
Any normal investor would know that this is detriment to him as such ongoing fee will very soon offset whatever saving that's gotten from the reduced sales charge. In fact, someone showed via a simple calculation, with reasonable assumptions, that after 3 years, amount of ongoing fees would offset the reduction in sales charge.
This could be good news for speculators or short-term investors but most of us are investing for at least the medium-term (i.e. at least 5 years). Also, such ongoing fee will also penalise those of us who have already paid the old sales charge and so we are penalised twice. Such fee reduced our investment rate of return, on a compounding basis, with no appreciable benefits to long-term investors.
Despite pleas to scrap this platform fee and alternative suggestions to generate revenue (e.g. start charging for fund switches, savings on IT side, reduce number of free magazines etc), both the GM and CEO are adamant in sticking to this new pricing structure. In fact, the CEO stated that such structure exists in US, UK and Australia. Yet, people who are familar with US and Australia contradicted him by saying that it is cheaper to invest in unit trust funds in these countries and it's even without such ongoing fee.
The decline
Their main competitors are Dollardex, AvivaDirect, POEMS and Finatiq. I know for certain that the first three do not have such structure (and in fact, Dollardex, in a e-mail response, said that they have no such plan). They are definitely not small fries in the industry either, having existed for between 5 - 10 years. Moreover, transfer of invested funds is free. Thus, it is no brainer that many of us are transfering our investment out of Fundsupermart to its competitor.
Of course there is a chance that the other online fund distributors may follow Fundsupermart's new pricing structure in future but until then, there is no harm moving to them. At worst, it's bye-bye unit trust funds and hello alternative investment instruments (likely ETFs).
Comments
Hopefully not. I know that Singapore investors have even posted in the FSM global community forum (on top of the local community forum) to alert investors in Malaysia and HK.
Yup, we're wondering too. We'll see how the next few months, especially since it'll take 4-6 weeks to transfer out.
Wrap fee is the way to go. Navigator has been doing that since 2003. Now that the rest of the pack has caught on the bandwagon.
I'm pretty sure there is still option of not having wrapped fees. Aviva, who owns Navigator, has such option - which is handled by Navigator.
At worst, just invest in ETF, which has way much lower expense ratio.