Recently, Fundsupermart (FSM), a popular platform used by many retail DIY investors to buy unit trusts, announced that they would be charging their users a platform fee with effect from May 2010. The charges will apply to investments made using cash or SRS. Increasing operating costs has been cited as one of the reasons for imposing the fee.
Under the new pricing structure, investors would expect to pay an additional 0.5% p.a. for equity funds and 0.2% p.a. for bond funds. To make up for the platform fees, upfront sales charges would be reduced. In addition, there will be a short promotion of 0.75% sales charge from 1st to 22nd April 2010.
The complete new pricing structure can be found here:
Changes to FSM’s Pricing Structure
The suddenness of the news surprised many of FSM’s users and as expected, a number of them are unhappy about the new charges being forced on them.
Many DIY investors prefer to keep their costs of investments low. In the absence of a superior value differentiation, they will simply go to where the lowest cost platform is.
Dollardex, one of FSM’s main competitors, has been quick to react on the news. An email with the subject heading “Transfer to Dollardex” has been sent to all their users. The section of their website that has the FAQ on fund transfers has also been updated. At the same time, they have reduced their upfront sales charge on selected bond funds to 0.5% permanently.
Personally, I think the latest move by FSM could backfire on them.
I can see an exodus of their users to alternative platforms like Dollardex. One of my friends even contacted me about transferring his holdings with FSM to me under a non-wrap account, which does not have any on-going fees.
The amount that FSM stands to lose (in the form of trailer fees) could be more than the additional platform fees that they are going to collect.
I think a better way for FSM to implement the platform fee thing is to allow their users a choice of whether they wanted to pay platform fees. Those who paid platform fees could be given unlimited free switching while those who did not would have to pay every time they made a switch.
Most buy and hold investors would be happy to stay with FSM under the no platform fee and no free switching model while those who buy and sell a lot might even be better off paying the platform fee to get unlimited switching.
This is also how Dollardex introduced their “on-going fee” model a couple of years ago. They allowed their users a choice between paying no fee and paying an on-going fee in return for advice.