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Comment by rafferty at 9:35am on 03 Aug 2011:
Can only be good news for investors. We do at last seem to be going in the right direction.
While I'd agree that it's taken far too long I tend to have more sympathy than most for the FSA. It's hardly been a one-sided battle when they've been up against the huge resources and political lobbying power of the the investment industry, the banks, and IFAs - all determined to keep the gravy train rolling in their direction.
Consultation has been dragged out for five years and some tame MPs more interested in looking after the industry than their voters had asked the FSA to delay implementation for yet another year. The FSA would have had a much quieter life if they'd let them get away with it.
Investment trusts in the main don't pay backhanders to financial advisers or fund platforms and the FSA announcment has been welcomed by their Association of Investment Companies asking for a ban on rebates and bundled charges 'as soon as possible'. They say: “Delaying the decision to ban such payments… risks inappropriate practices becoming embedded which will be harder to unwind at a later stage”.
Comment by EdSwippet at 11:21pm on 03 Aug 2011:
Could the end of payments by funds to platforms perhaps mean the end of the golden age of no-annual-charge ISAs -- and perhaps also no-annual-charge SIPPs and trading accounts -- from fund supermarkets?
A cost-conscious investor (hello!) can currently hold cheap trackers in an ISA without an annual ISA fee. Cheap trackers pay either nothing or nearly nothing to the platform. Presumably this is subsidized by other platform users who hold the more expensive funds that do currently pay the platform. And without this subsidy a platform could choose to levy its own separate fee. One unfortunate effect of the RDR then might actually be to raise the costs for what are currently the lowest cost offerings.
The RDR may also erode the competitive advantage carved out by Alliance Trust, Cavendish Online, and other brokers who already currently refund all their commissions to customers. That would be a pity -- these brokers are the "good guys".
Comment by justin at 9:01am on 04 Aug 2011:
EdSwippet - difficult to tell at this stage.
The likes of Cavendish should be unaffected if the following example holds true.
Current - you buy a fund with 1.5% AMC, which includes 0.5% trail commision and 0.25% platform fee. Cavendish Online charges a one-off £25 fee and rebates the 0.5% trail commission, so your net cost is 1% a year annual fund charge and the £25 fee.
Post RDR - I'd expect you'd buy the fund at the institional price, i.e. 0.75% annual charge. Then pay 0.25% platform fee (it might obviously be higher or lower) and £25 Cavendish Online fee, so net cost remains 1% plus £25.
The explicit platform fee should hopefully retain existing 'free' ISA and SIPP wrappers, although I note Alliance Trust already charges for its ISA wrapper (still competitive though).
Your point re: the potential cross subsidisation of trackers is interesting. You can buy ETFs within a SIPP for dealing fees only (e.g. with Sippdeal) so this should be viable, if low margin business. But you're right, some platforms might end up being more expensive for trackers, although Hargreaves Lansdown already charges 0.5% a year where no trail commission is paid.
Perhaps those with the biggest challenge will be discount brokers who don't currently rebate any trail commission and provide little value (e.g. research/guidance/advice) in return - there are quite a few and I suspect they'll struggle to justify why they're worth 0.5% a year once RDR (hopefully) makes customers more aware of such issues.
Comment by BernieB at 10:38am on 04 Aug 2011:
In "allowing customers to re-register ... between all platforms," will platforms be able to make charges for this service, that might make re-registration more difficult than it should be?
Comment by justin at 8:29am on 05 Aug 2011:
BernieB, looks a bit vague at the moment. The FSA has said in the past that platforms can charge for 'manual' re-registration of assets. No mention (that I can see) for re-registering via an automatic system - something that is currently being worked on by the Tax Incentised Savings Association.
Most platforms don't seem to currently charge for re-registration out (assuming they allow it!), but there are notable exceptions - e.g. Hargreaves Lansdown charges £20 per stock for an in specie transfer out.
I suspect we'll get to the point where the process will be automated and the FSA will then prohibit any charges for re-registering, but whether this will be in place by 31 December 2012 is anyone's guess...