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Unit Trust Platforms in Singapore
Many years ago, unit trusts were sold exclusively by the banks and other financial institutions in Singapore. In the good old days (to the sellers), funds were sold at an upfront sales charge of 5%.
Insurance companies then joined in the fray when they launched investment-linked (ILP) type of insurance policies, which were a special type of insurance policies that invested into unit trusts. Most of the time, the charges were also high as they were mainly embedded within the plans.
When the internet came about, online platforms emerged as another avenue for retail investors to purchase unit trusts. Without a physical presence, these platforms could afford to have a lower sales charge and compete on price and convenience.
How many of you here actually remember FinatiQ, Singapore’s first online bank?
It offered very competitive savings and fixed deposit interest rates. One could also buy unit trusts through the platform at a lower sales charge of 2-3%. Unfortunately, due to a loss in marketing and platform direction, Finatiq decided to cease operations a few years back.
Two other early online platforms offering unit trusts were Fundsupermart (FSM) and Dollardex. DIY investors who dabble into unit trusts would be familiar with them. Shortly after they came out, retail investors were able to buy unit trusts at a much reduced upfront sales charge of only 1.5-2%.
Due to their advantage as early adopters and low pricing strategy, they held a high market share among the DIY investors.
Despite this, the banks still controlled a significant portion of the unit trust market as they were able to rely on their vast network of bank branches and customer base to move sales. All these while continuing to maintain their 5% sales charge margin as many consumers were not aware of better alternatives.
A later entrant to the online unit trust industry was Phillip Unit Trust, a member of PhillipCapital. Their online platform POEMS is actually widely known to most retail investors as a share trading platform. POEMS, in actual fact, has one of the biggest market share when it comes to the retail market for share trading.
By offering unit trusts on their platform, PhillipCapital allowed their customers to use a single platform for buying both shares and unit trusts (among other products). For people who do not want the hassle of having multiple platforms, POEMS serves as a good option.
One key difference between POEMs and the other two platforms is that the payment for unit trusts need not be received first in order for the order to be transacted. For both FSM and Dollardex, they have to receive your money first before they can process your online order. For POEMS, they operate similarly to how they clear your stock orders. Clear the trade on the same day, and allow you to pay later.
Of course, should you choose to park your money beforehand at POEMS, they will be placed into the Phillip Money Market Fund, which has returned a respectable 0.56% return for the past one year.
With three main players now (FSM, Dollardex and POEMS), investors are basically spoilt for choice when it comes to choosing a platform. The price war among the three has been relentless and this can only benefit consumers.
However, with huge pressures depressing the upfront commissions, platforms can only make money from the trailer fees or find some other way to generate revenue.
Fundsupermart was the first to bite the bullet and started to impose a platform fee a couple of years ago. The platform fee ranges from 0.2% to 0.5% per year (depending on your account size and type of fund). There are no platform fees for CPF holdings.
Navigator, the engine behind Dollardex, also followed suit by imposing a platform fee on accounts held via financial advisers. This does not apply to accounts at Dollardex although Dollardex does have an option where you can choose to play an annual fee in return for portfolio advice and unlimited free switching.
The platform fee can be a significant factor for cost conscious investors who do not want their portfolio’s returns to be affected by an addition layer of costs. Of course, there are those who might argue that in the first place, paying the annual management fee to the fund managers does not guarantee performance and we should just invest into ETFs or equities directly. That is another topic for discussion which I shall not cover in this article. 🙂
However, one thing is definitely clear. As consumers become more educated and conscious about fees, buying unit trusts through banks is going to be a thing of the past. This is even more so for CPF investments, as the CPF agent bank’s fees are much lower if you go through one of the three highlighted platforms compared to buying them from the banks or elsewhere.
Banks will have to develop their own online low cost platforms or some other strategy if they wish to compete. This is already happening.