SIPP, Hargreaves Lansdown and Funds 2006 (dunstonh)

dunstonh

I know that Transact is an unbundled platform. Can you give me a few others to look at, besides AXA?

The other unbundled platforms are all IFA based and unlikely to be offered by a discount broker. I wouldnt worry about them for now.

If you were on an unbundled platform, you would not have to be concerned about what is going to happen post RDR?

Yes they will have to make some tweaks potentially but the bundled platforms have more to fear. With the Consumer Panel coming out firmly in supported the abolition of the hidden rebates to the platform, this would force all bundled platforms to move to the unbundled model. Clearly those that are already unbundled have an advantage.

I firmly believe that paying for something you are going to use is acceptable and you should aim to get value for money for it. I dont believe that cheapest is best. However, if something you may use only periodically costs a lot of money and you can do with it it then there is no point using it and paying for it. I do fear that sometimes people are sold platforms as able to do this that and the other when actually a lower cost and less functional option may exist that can do exactly the job that is needed.

I did a review yesterday on the AXA platform (which I get cheaper than published terms) against similar investments on the Skandia platform and the AXA platform worked out 0.2% TER a year more expensive. Now is that extra 0.2% worth it? for some it will be, for some it wont (also worth noting that both were cheaper than HL's SIPP using the HL MM funds - Going DIY doesnt always mean cheaper)

optimist_2

So if I decided to go down the fully advised route, I would have access to these other unbundled platforms?

Can you elaborate on what you mean by hidden rebates? Is an example of this rebating of the initial charge and trail commission within Skandia?

Also, when you say you got the AXA platform cheaper, is that through discounts that some companies offer IFAs?

Lastly, is the initial charge applied every time you invest, like the bid-offer spread, or is it different?

continued thanks....

optimist_2

You said that modern platforms don't provide commission for advisers, yet clubfinance keep their commission on the Skandia platform. There is no initial charge, so what is the commission likely to be that they are keeping?

When you said that investment type (funds, investment trusts, shares ETFs etc) was a personal thing, this presumably is a reflection of your approach to risk. If you are looking for low to medium risk investments, would funds be best for this, or is it not as simple as this?

Lastly, what are the rules regarding transfers from one platform to the next ie Skandia to AXAElevate? Can you just move without going through an adviser or broker? Jamesd inferred that this was the case when he was talking about part transfers from one plaform to the next, the only costs being platform exit or set up fees. I assume you could do PPP to SIPP directly, but what about SIPP to PPP?

Thanks.

dunstonh

You said that modern platforms don't provide commission for advisers, yet clubfinance keep their commission on the Skandia platform. There is no initial charge, so what is the commission likely to be that they are keeping?

We are in a transitional stage at the moment and terminology is getting mixed up.

Commission historically was something that was paid but it did not directly reflect the product charges. e.g. an adviser could be paid 4.5% of the transfer value but you paid no initial charge as the commission was funded out of future charges and not explicitly (so long after the cost of advice had been covered, the provider was keeping the extra for themselves).

Post RDR, the contracts wont allow that and adviser fees will be deducted explicitly from the contract. So, 4.5% adviser remuneration would see 4.5% deducted from the transfer value but nothing else.

Currently you have some providers that start with a clean contract with no charges to which the adviser adds their fees or a contract that starts with the charges and remuneration set to a level and then the adviser adjusts them down to meet their fee. You also get some providers calling it commission when in reality it is a fee or a combination. All a bit messy but it will clear up soon.

Skandia start on the basis of 4.5% initial charge and allow the adviser to reduce it down. They also allow all trail to be rebated or taken explicitly.

So, if clubfinance are saying they keep the commission they are probably referring to the natural trail commission and not the initial. In effect, it becomes like the HL contract where they keep the natural trail commisison.

When you said that investment type (funds, investment trusts, shares ETFs etc) was a personal thing, this presumably is a reflection of your approach to risk. If you are looking for low to medium risk investments, would funds be best for this, or is it not as simple as this?

ITs are typically one notch higher than UTs on a like for like basis. So, risk can come into it but for most its a mixture of personal preference and availability. Plus, retail OEICS and UTs pay the platform a hidden rebate. ITs do not. So, development over the years has been largely funded by that hidden rebate. Without it, you possibly wouldnt have platforms today or they would all look liek unbundled platforms.

Lastly, what are the rules regarding transfers from one platform to the next ie Skandia to AXAElevate? Can you just move without going through an adviser or broker?

It is up to the provider/platform. Some will only transact via an IFA. Some are geared for the main things to be used by the IFA and not the individual. If a platform doesnt want to offer direct to public then it does not have to.

optimist_2

When you say that the commission was funded out of future charges, is this likely to be trail commission, or some form of hidden charge?

Clubfinance rebate a lot of the trial comisssion, so I am not sure this is the commission they are referring to.

So, it might not be straightforward or cost-effective to make a part transfer from one platform and the next? Will it be easier to transfer between platforms post RDR?

dunstonh wrote: »

So, development over the years has been largely funded by that hidden rebate. Without it, you possibly wouldnt have platforms today or they would all look liek unbundled platforms.

Can you elaborate what you mean by this. Are these hidden rebates an additional cost to the investor, and are these prohibited on unbundled platforms?

I assume that ETFs and shares are another notch up on the scale of risk?

dunstonh

When you say that the commission was funded out of future charges, is this likely to be trail commission, or some form of hidden charge?

Typically it was out of the annual management charge.

Clubfinance rebate a lot of the trial comisssion, so I am not sure this is the commission they are referring to.

If there is no initial charge/commission and they are rebating "a lot" of the trail commission then how are they earning money?

So, it might not be straightforward or cost-effective to make a part transfer from one platform and the next? Will it be easier to transfer between platforms post RDR?

If you want to transfer as cash then its a doddle now. If you want to transfer with the investments in situ then that will become more available post RDR.

Can you elaborate what you mean by this. Are these hidden rebates an additional cost to the investor, and are these prohibited on unbundled platforms?

The fund houses pay the platform to market and distribute their funds. You dont know how much they are paying as it is not disclosed.

However, you can get a fair idea by looking at the institutional funds (where there are no rebates paid) and the retail funds (where there are).

Blackrock continental europe tracker class D (institutional version) has a TER of 0.24%. The Class A (retail version) has a TER of 0.64%.

So, the bundled platforms using the Class A are getting 0.4% in undisclosed commission compared to the unbundled one using class D who get nothing from the fund house.

I assume that ETFs and shares are another notch up on the scale of risk?

ETFs can be due to the way the work. Shares cannot really be compared like for like as its eggs all in one basket. A share can give you a total loss. A fund is unlikely to do that as it would need every holding to fail. So, a single company share would be higher risk but a portfolio of 30 shares would not be.

optimist_2

Thanks.

Thats what it says on clubfinance's website!

So as long as you are transferring in cash, its a doddle to part transfer between platforms. As its in cash, can you always do this directly, or may you need to go through an adviser. Is it the same for whole transfers?

So, an unbundled platform is where everything is out in the open, nothing hidden. Does that lead to better performance?

Maldecul

Fascinating thread, I am a layman with investments in a HL Vantage SIPP and ISA.

I find their service easy to use and much more manageable than the array of PPPs that I had accumulated before I transferred them all to HL.

However, I do find the HL charges fairly impenetrable and I am irritated when a fund charges .27% and HL add .5%, so I was stimulated by this thread to see if I could do better.

I entered a selection of the investments that I have in to the comfreefunds.com calculator and found that I could indeed make savings.

However, the savings were not as exciting as I expected, annual rebates were either 0%, 0.25% or .5% and the total that I would save on a reasonably substantial pension amounted to a few hundred pounds a year and so probably for now I will stay with HL.

I have a large part of my investments in HSBC tracker funds which are probably some of the cheapest on HL and so my case may not be typical, but it was certainly an interesting exercise and it seems to me that most of the funds with the .5% rebate were among those that feature prominently on the HL system.

dunstonh

So as long as you are transferring in cash, its a doddle to part transfer between platforms. As its in cash, can you always do this directly, or may you need to go through an adviser. Is it the same for whole transfers?

You can DIY as long as the receiving platform accepts DIY transactions. It is the same with partial or full fund.

So, an unbundled platform is where everything is out in the open, nothing hidden. Does that lead to better performance?

Everything is disclosed on unbundled platforms. However, the snag is that currently (and that word is important as it will change), unbundled platforms tend to work out about 0.2% a year more expensive on a like for like basis. Large values (£500k plus), are starting to come in equal or cheaper. The big problem is that unbundled platforms are newer and dont have the level of assets on platform to get the best rebates (which are used to reduce the TER). However, they are getting cheaper every year.

I have a large part of my investments in HSBC tracker funds which are probably some of the cheapest on HL and so my case may not be typical, but it was certainly an interesting exercise and it seems to me that most of the funds with the .5% rebate were among those that feature prominently on the HL system.

HL run them as a loss leader. There is no hidden rebates on those and HL have chosen not to add the 0.5% on as it allows them to market the pension as low cost (only when picking those funds). The majority of people will pick mostly managed funds and HL are then keeping the 0.5% which IFAs use for servicing. HL really ought to be refunding that as they are not doing any servicing. Post RDR (Jan 2013) there will no longer be natural commmision on funds for new purchases. So, that will have to change (cant remember if that has been mentioned or not on this thread now we are at 4 pages).

optimist_2

OK, I think we are getting there now. Found the Share Centre website last night, which has got a lot of useful information on it. I now know that an ETF is a bit like a tracker fund, but harder to source. Also that the value of Investment Trusts are based on market confidence, so not as widely used as Unit Trusts or OIECS. So I am now beginning to understand what you mean by bells and whistles. SIPPS are only really necessary if the majority of your investments are in shares, or you want to access other investments eg commercial property. So Skandia is beginning to look like a pretty good bet, especialyy for a novice investor.

Post RDR, won't Skandia have to transfer all its clients automatically onto the new compliant platform? Also up to how much are you protected for by the FSA if things go wrong ie money lost in transfer, platform defaults. Did I read somewhere that Skandia was in trouble a while back?

Thanks.