PPM, the Swedish premium pension authority, is having another go at reducing the number of funds listed on its platform. The firm now wants to introduce a limit of 25 funds for all managers. Currently, a parent company that owns more than one fund company can have up to 50 funds registered on the system.

But Swedbank Robur, which together with Handelsbanken is one of the two managers affected by the changes, wants to keep its current 54 funds.

“I think it’s a shame we have to limit the number of choices, since we want to offer a plurality of fund options,” said Pär Bäckman, head of information at Swedbank Robur.

Mr Bäckman admits, however, that it is questionable whether so many funds are necessary.

Swedbank’s merger with Folksam in 2007 is one of the reasons why the firm has so many listed options. It has not yet decided which of its products it would remove.

“We’re not sure that we will remove funds with the least amount of money, but we are currently considering which ones to cut,” Mr Bäckman says.

PPM, on the other hand, denies its latest proposals are another attempt to force a cut in the size of its platform.

“It has more to do with the fact that we think the same rules should apply to everyone. If we wanted to significantly reduce the number of funds, we would have done something completely different,” said Mats Öberg, head of PPM’s fund and finance department.

He says that, in order to achieve any major changes to the number of funds, new legislation is needed.

“At the moment, there’s no point trying to move forward with any single proposals,” said Mr Öberg.

PPM has put forward a number of changes to the government to encourage a reduction as well as how to give savers better support in choosing funds. It also expects to introduce an annual fee for asset managers wishing to list funds on the platform. Currently, it is free for investment firms who fulfil basic regulatory requirements to register funds.

“In the end, I think we will introduce an annual fee for funds to participate in the system,” said Daniel Barr, PPM’s chief economist. “Only then will we see a fall in the number of choices available.”

But all is not bad for managers. PPM also wants generation funds, with risk profiles aimed at different age groups, to be counted as one option to ensure asset managers keep these particular types of fund available.

“We value these kinds of products a lot and don’t want fund managers to remove them,” said Mr Öberg at PPM.

About 13 per cent of savings are currently in generation funds.

The new fee structure, introduced in April 2007, with the aim of reducing costs for the end investor, has now made it far less profitable for fund managers to offer funds within the PPM. Managers have to give part of the investment fees they collect from savers back to the PPM, which are then returned to investors. In April, this amount increased.

Last year, Skr1.5bn (e160m) of fees was paid back to savers while the average annual fee for savers was reduced to 0.33 per cent.

“This is a 25 per cent discount for savers, this year the average fee will be as low as 0.3 per cent,” said Mr Barr.

Last year, JPMorgan cut 15 of its listed funds, leaving 11 savings options on the system.

“There was quite a lot of discussion before introducing the fee, but we haven’t noticed any drastic cut in the number of funds. The aim of the new fee structure was to reduce the growth in the number of funds being listed rather than reducing the number of options available. Year on year, the number of funds being listed has grown by around 100 but, this year, growth has remained flat,” said Mr Barr.

The PPM system has long been under criticism for offering too many fund options, which is said to make it impossible for pension savers to understand. Since its launch in 2000, the number of funds listed has grown from around 460 to almost 800.

OUR VIEW

Offering savers a number of options has always been paramount in the creation of the PPM. Allowing educated savers to invest their money, not only in mainstream products, but also more specialised funds is probably a good thing.

The question is where to draw the line. A choice of 800 funds would scare any committed saver, but reducing that number to a proposed 150 would risk narrowing the choice of funds too much.

So far, any attempts to force fund managers to withdraw any of their fund offerings has had little effect. If the PPM is serious about reducing the number of fund options, it is obvious that more drastic measures need to be taken, such as the platform’s mooted proposals of introducing an annual fee for investment managers. Its new fee structure has had little effect on the number of funds listed, despite making it more costly for managers to offer funds.

Convincing Swedes to choose anything but the default option is a far bigger issue. Four out of 10 savers are still in the default option, the premium savings fund that is managed by AP 7. And the fact that PPM’s chief economist, Daniel Barr, also harbours his savings in the default option, gives you an indication of just how big that challenge is.

Printer friendly version

Email this article to a friend