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Consumer Panel says FSA should ban all platform rebates

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  • dunstonh
    dunstonh Posts: 120,195 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Why didn't my IFA foresee that?
    Because ultimately, we dont have a crystal ball and IFAs are not fund managers.

    One of the jobs of the IFA is to get the risk profile right and recommend investments that are consistent with that risk profile and that it matches objectives, time-scale and ability to understand. The knowledge and research of funds and investments can lead to recommendations on what type of strategy to use or why certain funds may be suitable for that strategy but at the end of the day, it is the fund manager that does the investing. The IFA is not an investment manager.
    My IFA has put me in Aberdeen Property and JPM Japan.

    Lets say your IFA had only put you in those two funds, that would be bad investing. However, utilising both of those funds in a diverse sector allocated portfolio is fine. It doesnt matter that both may have had a bad period because you know full well that at various times you will get bad points in different sectors. You accept the rough with the smooth when you invest (or at least you should). If you cannot accept negative periods then you shouldnt be investing.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dunstonh wrote: »
    Because ultimately, we dont have a crystal ball and IFAs are not fund managers..............

    Yes. Fully understood, Dunston. I was only raising it as a rhetorical discussion. I'm not talking about being only in those two funds. Basically I'm positing the scenario where the pension plan was fine, the fund mix asset-base was perfect.

    But I'm sure you would agree that any bag of, say, 8 providers (Jupiter, Neptune, First State....) might outperform an alternative bag by substantial amounts over a 5 year period. All identical 'focus' but some managers got the specific companies/bonds spot on, while some others picked dogs. [E.g. Blackrock UK Smaller Companies, Artemis UK Smaller Companies +43%, -2.6% over 5 years respectively]

    I would find it extremely difficult to 'blame' any IFA for simply recommending the wrong fund manager. But I guess Joe Public is going to attempt to call you to task - but only with hindsight. Put any fund sector (Asia Pacific ex Japan, Global Bonds, you name it...) and the difference in results is truly amazing.
  • BFM
    BFM Posts: 101 Forumite
    i don't really understand what this would mean to a small investor who is prepared to make the decisions as to what funds to buy through H-L (and accept the risk that i might get it wrong) but want to keep my costs as low as possible (ie zero up front and slightly discounted TER).

    are these changes likely to result in more cost / less choice to me?

    if so, who is benefitting from the proposed changes?
  • dunstonh
    dunstonh Posts: 120,195 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    i don't really understand what this would mean to a small investor who is prepared to make the decisions as to what funds to buy through H-L (and accept the risk that i might get it wrong) but want to keep my costs as low as possible (ie zero up front and slightly discounted TER).

    are these changes likely to result in more cost / less choice to me?

    if so, who is benefitting from the proposed changes?

    It is difficult to see who will benefit from it. HMRC seem to be the biggest winners as VAT gets factored into fees that are currently not VATable.

    HL is a bundled platform. It gets paid rebates from the fund houses to market their funds. These rebates are not disclosed. So, when HL could be paid £x for marketing one fund and £y for marketing another. By getting rid of rebates, you remove that potential. However, the loss of income will mean they have to collect the money in another way. So, you then look at unbundled platforms that already work that way. They don't keep the rebate but you have to pay to be on the platform. At the moment, smaller investors are better off on bundled platforms. Larger investors are often better off on unbundled. Unbundled platforms also tend to have a greater range of investments (as they are not relying on commission and rebates) and they tend to offer more institutional funds (which are typically cheaper looking purely at fund charge).

    In theory, if the fund houses were not paying rebates, they could offer their funds cheaper. However you would have to pay the platform explicitly. The platforms that already work that way are priced poorly for small investors.

    HL also keep most or all the IFA trail commission (depending on tax wrapper). That will stop post RDR. So, either HL accept the loss of an average of say 0.3%p.a. or they introduce a charge to account holders to compensate. HL want the fund houses to continue paying the trail commission to them without charging the consumer (ie. fund house absorbs it). However, HL are not the biggest player and whatever they get, you will see the bigger players get it and the fund houses surely cannot afford to pay out 0.5% p.a. without it being charged to the investor.

    In the ideal world, unbundled is clean and transparent. However, its likely to be more expensive for smaller investors.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • BFM
    BFM Posts: 101 Forumite
    what is the underlying problem they are trying to fix?
  • dunstonh
    dunstonh Posts: 120,195 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    BFM wrote: »
    what is the underlying problem they are trying to fix?

    A question that has been asked a number of times but yet to get a satisfactory answer.

    Basically some appear to want total transparency. A level that if you were buying a loaf of bread at Tesco you would have to not only have the price but a full breakdown of where that £1.40p is going right down to farmer, workers etc.

    Commission disclosure has been wrong, in my opinion, as it focused on what the "retailer" earned and not on the charges the consumer was paying. So, you had this situation where people would go with the lowest commission product even though it could mean they paid more in charges. The most important thing should be the charges you pay. I dont see the problem if someone in the food chain gets more than someone else. If you know option A costs £x and option B costs £y then you can make a choice. However, with full transparency you will have to know how much each layer costs and you could in theory have a 1.5% AMC being broken down into 5 or 6 chunks of 0.x% with each layer having to issue a disclosure document.

    The last bit is that at the moment, most of the charges are not vatable as they are bundled as one and classed under sale of product. If it gets broken down then some of the charges will become VATable.

    The idea of full transparency is good but if it costs you an extra 0.3% a year then is it worth it
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • BFM
    BFM Posts: 101 Forumite
    for goodness sake, with all the problems in the country at the moment this is what they want to look at. i already pay tax when i earn income, now they want to tax my S&S Isa and Pension funds - or would they likely offer different flavours depending on the wrapper its housed in.



    and thanks for the explanation.
  • dunstonh
    dunstonh Posts: 120,195 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    edited 30 March 2011 at 4:53PM
    for goodness sake, with all the problems in the country at the moment this is what they want to look at.

    Virtually all the MPs are against most of the RDR. Its mainly the FSA that want it. There are bits of the RDR that are good but other bits are completely pointless. Its costing billions of pounds to implement and there are very few that are going to gain from it. The FSA themselves considered scrapping the retail distribution review at a board meeting last March but decided to push on with plans for fear of “losing face”. This is FSA driven. Not politicians.

    The FSA say its required because of pension mis-selling, endowment mis-selling and PPI mis-selling. PPI has very little to do with advisers as its unqualified shop staff, general clerks or telesales people that did that and PPI wont actually be affected by the RDR. Pension mis-selling occured between 1988 and 1993 and was largely based on actuarial errors rather than advice errors and endowments were largely pre-regulation and certainly before the FSA rule book came into play. I am not saying things are perfect now but it is a bit daft listing pre-regulation things or things from a different era or even products not even involved as justification.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dunstonh
    dunstonh Posts: 120,195 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    The FSA have delayed publication of the platform paper now until Q3.

    No mention yet if the deadline for implementation will be put back either but it is highly unlikely.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Reaper
    Reaper Posts: 7,356 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    Wish they would get a move on. I have been wondering about changing platforms but there doesn't seem much point if they are all going to be adjusting their fees soon.
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