Cheapest Sipp: build yourself a low cost DIY pension article

dunstonh

So if as suggested, HL has been cross-subsidising those accounts with passive funds, is that an ethical way to do business with people's pensions?

The passives have had the cross subsidy from managed. It is not ethical and that is why the regulator has put an end to it.

Has it been fair to customers with managed funds?

No. And the good news is that managed fund charges have come down.

Has it been fair to reel in thousands of additional customers with passive funds by treating their business as a loss leader?

If you put aside the ethical comments above, then the use of loss leaders in the retail industry is very common.

And under the new regime, how do HL's actual costs relate directly as a percentage of the size of the funds held? Does it cost one hundred times more to administer a single fund in a single account containing £100k than it does one containing £1k?

On the advised market yes but it is harder for the non-advised market to claim the same. Especially as platforms are heavily automated. However, due to solvency and liability issues, the costs are a bit higher with larger amounts. And as mentioned already, there is still an element of cross subsidy where larger investors carry a portion of the costs of the smaller ones.

You mention that "most platforms are charging at least 0.25%". I agree that some are - which in my opinion is no less arcane than HL's new fee structure - but there are plenty of others that have either a flat administration charge, or a capped charge.

Indeed, in a number of areas HL is proposing to apply a cap. But not on the cost of administering a low-cost tracker in a SIPP - why? I can only presume because HL and the industry is concerned it was becoming too attractive for customers.

That would introduce a bias. Now, if HL or anyone else want to introduce a new contract that only offers a limited selection of investments (which could be tracker only) and price that differently then they can. You just cannot create bias within the same contract.

The platforms dont care whether you have shares, ETFs, passives or managed. They will earn the same. Which is the whole point. No bias.

mikebeaches

The platforms dont care whether you have shares, ETFs, passives or managed. They will earn the same. Which is the whole point. No bias.

If that is the case why do HL have a fee-cap on holding shares, ETFs and Investment Trusts, but not on managed or passive funds? Appears to be plenty of bias there?

dunstonh

mikebeaches wrote: »

If that is the case why do HL have a fee-cap on holding shares, ETFs and Investment Trusts, but not on managed or passive funds? Appears to be plenty of bias there?

Good question. Maybe their interpretation of the guidelines (the regulator doesnt give black and white rules) is that they can do that. Maybe my interpretation is wrong or the other platforms that don't differentiate.

Possible view is that as ETFs are direct investments they are a different investment universe, there is scope for difference. Whereas managed funds and index tracking funds are part of the same investment universe.

mikebeaches

dunstonh wrote: »

Good question. Maybe their interpretation of the guidelines (the regulator doesnt give black and white rules) is that they can do that. Maybe mine interpretation is wrong or the other platforms that don't differentiate.

Possible view is that as ETFs are direct investments are a different investment universe, there is scope for difference. Whereas managed funds and index tracking funds are part of the same investment universe.

Thanks for coming back and I'm glad you agree the logic is not entirely clear. Of course I'm cynical because of the way I've been treated, but HL have used the new regulations to proclaim everybody 'must be charged the same'; but then has capped the fees on certain classes of investment and not on others. Disingenuous to say the least in my opinion - and that is the behaviour of the UK's largest retail broker in these new so-called 'fairer times'.

bigadaj

mikebeaches wrote: »

Thanks for coming back and I'm glad you agree the logic is not entirely clear. Of course I'm cynical because of the way I've been treated, but HL have used the new regulations to proclaim everybody 'must be charged the same'; but then has capped the fees on certain classes of investment and not on others. Disingenuous to say the least in my opinion - and that is the behaviour of the UK's largest retail broker in these new so-called 'fairer times'.

The process of rdr2 appears to be quite successful in so far as those that are interested and take an active interest in their investments are concerned.

To be fair there is nothing wrong with pricing products in different ways, but there is in hidden commissions and kick backs which is now being banned, though I'm suspicious that there might be ways a round that platforms and brokers will manage to wheedle.

To take HLs analogy with wait rose pricing is disingenuous bit interesting in this particular context. The supermarkets manipulate pricing habitually, selling staples such as milk and bread at or below cost in hoping that this is then more than made up for in the rest of a shoppers purchase. In many cases they are paid for by the suppliers on the basis of volume of sales, which I also presume hl are trying to do with the fund houses.

Ethics in business is often a smoke screen that is manipulated for gain so as a consumer all you can ever do is work out the best deal for you and then move if and when that deal changes. I am uncomfortable with free or very cheap deals as they are unsustainable but to change terms and conditions whilst also changing the exit terms is a terrible move.

dunstonh

though I'm suspicious that there might be ways a round that platforms and brokers will manage to wheedle.

The FCA will be following up just as it has on the advised side. It found 2 deals in its research that have been referred for investigation and a number of others it has sought clarification on. It will do the same review of the DIY market.

gadgetmind

bigadaj wrote: »

Ethics in business is often a smoke screen that is manipulated for gain

Often? It's a trifle more prevalent than that!

BigMac1_2

Well, it looks like I have got my wish granted - a full ability to simply manage my pension pot with out having to buy an annuity! IF he keep to his word, I think that there will be a lot of people retiring April 2015! Yeh! :T:j:T

SnowMan

BigMac1 wrote: »

Well, it looks like I have got my wish granted - a full ability to simply manage my pension pot with out having to buy an annuity! IF he keep to his word, I think that there will be a lot of people retiring April 2015! Yeh! :T:j:T

I think we will see gangs of pensioners out on the razzle as they retire and blow all their life savings on a mighty celebration :beer::beer:

bigadaj

I suppose this makes idealistic sense for the Tories but makes me wonder what the underlying reasons might be.

The ability to access pension money more easily might be seen through a boost to spending, so another short term uplift to the economy, making things look better and recovery happening faster.

We are now just over a year from an election so makes a lot of sense for the Tories to do this now for the numbers to look far better over the next few quarters.