L&G set to axe unit trust charges

Click to follow
The Independent Online
Legal & General, one of the UK's largest insurers, is poised to launch a unit trust war by axing initial charges across virtually its entire range of funds.

The company's move could slash hundreds of pounds off the initial charges of 5-6 per cent paid by savers on their unit trust investments. If L&G, which has struggled in the past to attract a sizeable inflow of savers' money, succeeds in increasing its market share significantly, other unit trust providers may be forced to follow suit.

Michael Hayden, managing director of L&G Unit Trust Managers, said yesterday: "We are reviewing our prices. It is our intention to move in that direction. There are still some technical details to overcome, but we hope to have the whole thing in place in the summer."

Instead of a large one-off initial charge, L&G intends to levy a sliding scale of charges, beginning at 5 per cent if funds are withdrawn in year one.

Mr Hayden added that the company had no intention of increasing its annual management fees of 1.25-1.5 per cent to compensate for the disappearnce of the up-front charge.

L&G's decision extends the price war that has long existed in the tax- free personal equity plan sector in unit trusts. For several years now, Peps have been sold more cheaply than unit trusts, reflecting tough competition in that market.

Last year the insurer dropped initial charges on its PEP products. Since then, demand for L&G Peps has more than tripled beyond the pounds 40m it sold in 1994-95.

The company, which won 1 per cent of the pounds 4bn unit trust market in the 1995-96 tax year, hopes to build up its sales in the same way.

Julia Eynon, assistant marketing director at Morgan Grenfell, a large unit trust provider, said: "We do not plan to go down the same route at present. Our research shows that more than 60 per cent of investors believe performance is more important than charges."

Gareth Marr, a director at Moores Marr Bradley, a top financial advice firm in the South-east said: "What this shows is that disclosure of charges works in favour of consumers. I would have no problem with L&G's charging structure. Its performance is among the better ones. I would have thought that if providers want to maintain market share they will have to compete."

Comments