You will be able to explain how fund platforms charge and what you give up compared with advice.
Arjun has decided he does not want a relationship manager. He reads, he is comfortable with spreadsheets, and after lesson 2.1 he is still annoyed about the 3% sales charge he paid last month. A friend tells him to use a fund platform instead: same funds, much lower charges, do it yourself on your phone. He wants to know what the catch is.
There is a trade, more than a catch. This lesson explains how fund platforms make money, how that changes what you pay, and what you take on when you buy without advice.
A fund platform is an online service that lets you buy and sell unit trusts from many managers in one account, usually without advice. Platforms of this kind usually cut sales charges sharply or waive them altogether. They still have to earn money, and they do it in one or more of three ways.
Some earn from trailer fees, the share of the management fee that managers pay distributors, which you met in lesson 2.2, Yearly charges: management fee, expense ratio and trailer fee. The platform sells you the same class a bank would and keeps the trailer fee, but takes little or no sales charge. Some charge you a platform fee instead: a yearly percentage of the money you hold on the platform, sometimes with a cap or a minimum, taken from your account. Some do both.
The fee page tells you which model the platform uses. On S$10,000 held all year, a platform fee of 0.4%, an example figure, costs S$40. That is a visible charge, unlike the trailer fee, which is why a platform with a fee can still work out cheaper than a channel with none.
The more interesting differences are in how platforms treat trailer fees.
Some platforms rebate part or all of the trailer fee to you, usually as cash or extra units credited to your account. Others offer clean share classes, the ones with no trailer fee built in, which you met in lesson 2.3, Same fund, different price: share classes. In both cases the platform charges you a platform fee instead.
That changes how you compare. Take Wei Ling's fund from module 2, with its example expense ratio of 1.75% in the class with a trailer fee, and 1.00% in the clean class. On a bank, she pays 1.75% a year inside the fund and nothing on top. On a platform offering the clean class with a 0.4% platform fee, she pays 1.00% plus 0.4%, which is 1.40% a year in total. The platform route is cheaper by 0.35% a year, and that is before any sales charge.
If the platform sells only the class with a trailer fee and rebates part of it, the sum is different again: the expense ratio, minus the rebate, plus the platform fee. The only reliable method is to add up the total for each route. Never compare one route's platform fee with another route's expense ratio.
Without advice, the choices are yours. Which funds to buy, how much to put into each, when to switch and when to sell. Nobody runs a needs analysis for you, as described in lesson 3.1, What a bank adviser does for the money, and nobody calls when markets fall to talk you out of selling.
So mistakes in choice and timing are yours too. If you pick a fund that does not suit your goals, or chase last year's best performer, or sell in a fright and buy back higher, the platform will carry out your instructions without comment. Lower charges help only if your own decisions are sound. Some platforms offer research, model portfolios or paid advice as an add-on, and some investors use those. Be clear which service you are getting before you rely on it.
Arjun decides this suits him, on one condition he sets for himself: he will write down a plan before buying anything and change it only once a year.
A platform holds your money and your units, so check it before you check its prices. Fund platforms in Singapore have to hold the right licence from MAS for what they do. Search the platform's company name in the MAS Financial Institutions Directory and note the licence type and the activities it covers. If the company is not listed, or the name on the website does not match the name on the directory, stop there.
Lesson 3.3, What happens to your units if the platform closes, covers how platforms hold your units and what protects them. For now, you only need to confirm that the company is licensed.
A platform's fee page tells you most of what you need, if you know what to look for. Look for the platform fee and how it is charged, whether sales charges apply and on which funds, how trailer fees are treated, and whether there are fees for switching, selling or transferring out.
In the activity below you will read one platform's fee page and write those things down, ready for the comparison in lesson 3.4.
Look up the fee page of one fund platform and write down its platform fee, sales charge policy and how it treats trailer fees.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).