Platforms and wraps?

dunstonh

For what it's worth his advice costs £100 a year, which for the total amounts I'm effectively managing is less than 0.1%, so I think it's good value. I don't really need much advice.

Most IFAs have clients that are the same as you. You pay for odd bits of advice or use us as a sounding board on some things but get better terms than full advice.

jamesd

Charterhouse, one potential difference is what happens to the trail commission. Some providers can reduce that, reducing the annual charge on the investments. That's what a fee-based IFA could do, eliminating typically 0.5% of annual charges from the investments in exchange for their fee. I don't know how Cavendish and Fidelity via them handle this.

Hargreaves Lansdown rebates some of the commission from the investments in their ISA but not for those in their SIPP.

lpgm

I hope this isn't too far off topic, but...

Am I right in thinking that all advisers will have to move from commissions to fees by 2012? If that's the case, what will happen to the execution-only platform model like Hargreaves Lansdown's? (I know HL do advice as well.)

jamesd

They will find some other way to charge that fits the requirements. Fee as percentage of investment perhaps, just as HL currently charge 0.5% capped at £200 plus VAT for investments that don't pay trail commission.

dunstonh

Am I right in thinking that all advisers will have to move from commissions to fees by 2012? If that's the case, what will happen to the execution-only platform model like Hargreaves Lansdown's? (I know HL do advice as well.)

As much as things change they stay the same.

Commission is going but the commission system will remain and advisers will continue to be paid through it. The only difference is that instead of the product provider decided what the adviser gets paid, the adviser will decide what they get paid. It is anticipated that this will see wealthier clients end up better off but the not so wealthy being worse off.

IFAs can already undercut HL if they want to. For larger transactions its worth it but for smaller ones it isnt.

I suspect what will happen is that HL will charge a fixed fee of 0.25% p.a. and rebate trail where trail is payable or a fixed annual fee for using them. Trail commission will not stop after 2012. It will still exist for earlier investments and contracts.

Charterhouse

Cavendish do refund some of the trail commission - everything in excess of £10.

So, let's say you have 2 plans with Fidelity Funds Supermarket, total investments £100,000 (fairly close to my real numbers), you'd normally pay £500 a year, but now you get £480 of it reinvested - Cavendish take off £10 for each plan (ISAs are one plan, Investments not tax-shielded are another).

http://www.cavendishonline.co.uk/investments/rccs.php - please correct me if I misunderstand this.

jamesd

Charterhouse, thanks. I think you're right. Seems to exclude pensions though. "All products are eligible for the scheme where renewal commission is paid, except for pensions, self invested personal pensions and small self-administered pension schemes"

I happened to check Cavendish vs HL for Allianz RCM BRIC Stars. 1% initial cost at Cavendish, 0% (4% discount in UT form) from HL. Same 0% for both in ISA form. So I moved on to the rest of my bigger non-ISA holdings, ISA/bare numbers:

Allianz RCM BRIC Stars Cavendish 0%/1% HL 0%/0%
Scottish Widows Latin American Cavendish 2%/2% HL 0%/0%
Fidelity SE Asia Cavendish 0.5%/0.5% HL 0%/0%
JPM Natural Resources Cavendish 0.5%/0.5% HL 0%/0%
Jupiter Financial Opportunities Cavendish 0.25%/0.25% HL 0%/0%

Moving on to some held in ISA or pension form:

Neptune Russia & Gtr Rus Cavendish 0.75%/0.75% HL 0%/0%
Jupiter Emerging European Op Cavendish 0.25%/0.25% HL 0%/0%
Invesco Perpetual Income Cavendish 0%/0% HL 0%/0%

This seems to make Cavendish cheaper for long term buy and hold but not so good if you need to trade to use your CGT allowance each year to avoid accumulating a large gain, nor if you want to adjust positions significantly each year. For some of those funds the annual commission saving would cover the cost of the initial charge for relatively infrequent trading, like once or twice a year.

A platform or wrap where there's an initial charge to put the money inside and then no initial or ongoing commission might end up cheaper than either.

dunstonh

A platform or wrap where there's an initial charge to put the money inside and then no initial or ongoing commission might end up cheaper than either.

Yes. It will do. An execution only transaction through an IFA may find they will set it up for £500 but all trail rebated or no charge but 0.25% fixed trail or a range of combinations depending on what you want and what they want.

koru

dunstonh wrote: »

However, I notice you didnt mention fund supermarkets that advisers use. These are the most common platforms used. These usually incur no extra charges and are often cheaper. Sometimes even more so than the DIY platforms.

Let's not get into the passive vs active argument here, but for those who want low cost trackers is it possible to hold the Vanguard index funds through Fidelity Funds Supermarket or Cofunds? What about the HSBC index funds, or any other index funds with TER's lower than, say, 0.4%? As these funds don't (as far as I know) pay trail commission, I am guessing they do not appear on these two platforms (although somehow HL and Alliance Trust manage to include them without adding any platform fee). Or can you opt to pay a fee to the platform if you invest in funds with no trail?

Fidelity has a very cheap UK tracker, which I assume is available at no extra cost through Funds Supermarket, because they would benefit indirectly from the small AMC on the actual fund.

dunstonh

or any other index funds with TER's lower than, say, 0.4%? As these funds don't (as far as I know) pay trail commission, I am guessing they do not appear on these two platforms (although somehow HL and Alliance Trust manage to include them without adding any platform fee). Or can you opt to pay a fee to the platform if you invest in funds with no trail?

I have set up an execution only pension on the Skandia plaform already this year using trackers. The AMCs ranged from 0.1% to 0.25%. That was no trail but one off initial fee. The fee was collected via the pension as well effectively giving it tax relief. So, yes its possible. Although the Vanguard ones are not yet on their platform.