Prudential launches factory-gate pricing

Prudential has unveiled the detailed pricing structure of its new unit-linked bond wrapper – the Prudential Investment Plan (PIP) - which gives investors access to 63 funds managed by Prudential and other leading UK investment companies.

Building on Prudential’s strong reputation in the active management of multi-asset funds, the new product introduces a factory-gate priced remuneration model to the Pru’s investment portfolio for the first time. It provides intermediaries and clients with a more transparent pricing structure, and allows 100 per cent of client funds to be invested up-front, with advisers agreeing their fee levels directly with clients. Investors can currently transfer money between any of the funds free of charge and the investment wrapper, in conjunction with our comprehensive trust range, is structured to help tax planning. Regular withdrawals are available to enable income to be taken.

Research commissioned by Prudential among IFAs across the UK reveals that 65 per cent of advisers believe factory-gate pricing will ensure greater transparency and Prudential feels this will lead to an increase in trust between the adviser and the client. The study also found that 72 per cent of advisers say they would be comfortable justifying existing commission charges to clients and that 54 per cent do not believe the widespread implementation of factory-gate pricing will lead to them having to lower fees.

However, advisers acknowledge it will have a significant impact on their operations, with 64 per cent saying they believe it will prompt them to streamline their business models and 76 per cent saying they would look to adopt hourly fees if factory-gate pricing became more widespread.

Frank Morton, Investment Head of Business Development at Prudential, said: “We have developed a product wrapper in response to growing demand for a more transparent fee structure. As an industry, we need to move to a viable approach to remuneration and one that delivers a clearer understanding of the costs of financial products and advice. In our view, the current model is not economically sustainable.”

The PIP funds will combine Prudential’s recognised track record in multi-asset fund management with a more flexible charging structure that allows advisers and clients to agree fee levels for advice and also gives the added advantage of the option of investing 100 per cent of clients’ money up-front in the funds of their choice.

At launch, PIP will include Pru’s new cautious funds - the Cautious Managed Growth Fund and the Managed Defensive Fund - completing their rollout (both onshore and offshore) across pensions, collectives/ISAs and investment wrappers.

With PIP, advisers have the flexibility to charge clients an up-front fee, or to use trail commission or a combination of trail commission with an up-front fee to charge for their services. It also has the flexibility to enable annual management charges and adviser remuneration to be reduced for larger investors.

In launching the Plan, Prudential’s approach will be to work closely with advisers as they develop their business models and help them transition to non-provider funded commission structures.

Frank Morton remains realistic about the market’s immediate ability to make this transition. “We don’t expect all advisers to embrace factory-gate pricing overnight. It will be a gradual process but the reality is that the ‘commission environment’ is changing. Depending on their circumstances, different advisers will be better placed to make the change sooner than others and we are committed to helping them do this through the support we provide.

“For this very reason, as the market transitions, we’ll continue to offer our existing unit-linked bond in parallel with the new product. We do, however, believe those advisers adopting factory-gate pricing now will benefit from ‘first-mover’ advantage and have the opportunity to build a more transparent and closer relationship with clients who truly value the level of client service that they get for their fee or commission paid.”