MSE News: Guest Comment: How financial advice will change for good

gadgetmind

pqrdef wrote: »

But sticking with the platform fees, presumably it'll be possible to buy commission-free shares in funds direct from the fund house.

That has never been possible in the past and I doubt it will be in the future as they don't want the hassle of direct customers. Buying direct (or IME via an IFA) has always cost full whack up front and per annum, hence the discount platforms.

Investment Trusts OTOH do tend to have low-cost monthly investment schemes, which is yet another advantage of these often overlooked collective investments,

jamesd

Lokolo wrote: »

Currently HL charge me no explicit fee, good. However they keep something like 0.5%/0.75%, which equates to around £15/20. Post RDR they will bring in explicit fees,and if its anything like the unbundled platform fees it will cost around 3x as much. And for only a small portfolio the costs wont make it worthwhile.

If you want to find out how much they get out of the fund's annual management fee, ask them:

Please tell me the percentage portion of fund annual management charges that are rebated to Hargreaves Lansdown, as required by COBS 6.4.3 and the requirement to make the basis for charging - a percentage - clear.

If the answer is unsatisfactory make a formal complaint.

If the answer remains unsatisfactory, make a complaint to the Financial Ombudsman Service, which handles consumer enforcement of this rule.

COBS 6.4.3 can be found at http://fsahandbook.info/FSA/html/handbook/COBS/6/4

Rollinghome

pqrdef wrote: »

But sticking with the platform fees, presumably it'll be possible to buy commission-free shares in funds direct from the fund house.

You can already.

The obvious examples are tracker funds such as L&G and there are various others such as Troy Trojan, often mentioned here, which can be bought as 'I' shares charging 1.5% AMC through H-L etc. or commission-free as 'O' shares charging just 1.0% AMC and no front end charge from the ACD for Troy Asset Management - Capita. (The fund was soft-closed to new investors earlier this year. The same terms apply to existing investors.) You need to check out the various classes and terms offered by different fund managers in the prospectus.

The idea that it was a great concern to IFAs that lower net worth individuals might no longer get the benefit of their advice because they cross-subsidised them was the semi-official propaganda used to try to scupper RDR and prevent the ending of the commission game - and total nonsense believed only by those who believe everything they're told.

A few hundred quid from smaller investors was still a few hundred quid and was happily grabbed by the smaller outfits. They wouldn't touch anyone they couldn't make enough money from and won't in future either. An exclusive few don't take on clients they expect to make less than £10k a year from and that's the model they'd all love if they could get it. They can't and won't. Most will need to take the clients they can get or go out of business.

Quite how their remuneration will work out post RDR is probably as much an unknown to most IFAs as to everyone else, particularly as it's not known quite what the providers or big players such as H-L will do.

When the charges can't any longer be hidden away in commission, which gave the impression the service was cost free, then the full cost of the service should become clearer and that should put downward pressure on fees. On the other hand, up to 20% of current IFAs won't be able to achieve the new, still very basic, qualifications that will be required and will retire or go off to sell something else. Arguably they should never have been allowed to give advice anyway. So for some the competition will increase, for others not.

Most important is that the main objective of RDR was never to drive down the cost of advice but to end the problem of "commission-bias" so that clients would be more likely to get proper advice rather than just a sales pitch paid for by the product provider and masquerading as "advice". Don't be too susprised to see many more IFAs offering investments that don't pay commission.

Lokolo

Rollinghome wrote: »

When the charges can't any longer be hidden away in commission, which gave the impression the service was cost free, then the full cost of the service should become clearer and that should put downward pressure on fees. On the other hand, up to 20% of current IFAs won't be able to achieve the new, still very basic, qualifications that will be required and will retire or go off to sell something else. Arguably they should never have been allowed to give advice anyway. So for some the competition will increase, for others not.

I disagree a lot with this. As I said earlier, a lot of platforms already have announced their post RDR charging structure. My portfolio is too small for this to be cost effective. I don't want to be charged 3x what I am at the moment, which is what it is from examples such as Cofunds, whereby it will cost £40 + £9, so £49. Currently my platform is free, but I get charged the comission part whereby HL keep the rebate - effectively costing me £15-20 on £3k portfolio.

It's not total nonsense, it's the truth. Post RDR will make it less cost effective for smaller portfolios.

I agree with your part that the costs should be clearer, but I don't think the current charging structure should be banned.

magpiecottage

Pincher wrote: »

we need to have advisors who are NOT PAID AT ALL.

Good idea.

I volunteer you Pincher. That will require you to take at least six exams, paid for out of your own money, of course. You must then pay another £1,500 or so out of your own money again to be registered and authorised by the FSA.

Then you must put up £10,000 capital (rising to £20,000) and keep it sitting doing nothing as a reserve. Pay a few more thousand pounds per annum in fees to the FSA, levies to the Financial Services Compensation Scheme to bail out victims of other firms you never had anything to do with, a levy to the Financial Ombudsman Service and professional indemnity insurance.

Every time somebody takes you to the Financial Ombudsman Service you can pay it £500 a time - even if you have no case to answer. If it happens to find against you then you must pay your PI excess - assuming you maintain PI because you will be personally liable for the rest of your life.

And you are going to do that all for no charge.

Actually, you can probably avoid being personally liable for the rest of your life by including all of these altruistic activities in your inevitable bankruptcy.

I am afraid the level of protection now demanded makes these services expensive.

If consumers do not want to pay for the services of an adviser they need not take them and but then if it goes wrong there is only one person to blame.

jem16

Rollinghome wrote: »

Troy Trojan, often mentioned here, which can be bought as 'I' shares charging 1.5% AMC through H-L etc. or commission-free as 'O' shares charging just 1.0% AMC and no front end charge from the ACD for Troy Asset Management - Capita. (The fund was soft-closed to new investors earlier this year. The same terms apply to existing investors.)

Unfortunately, due to that soft closure, buying direct will see you needing a minimum of £250k and having to pay a 5% initial charge. The "O" version is still available through the unbundled platforms without those restrictions but with the platform fees.

Quite how their remuneration will work out post RDR is probably as much an unknown to most IFAs as to everyone else, particularly as it's not known quite what the providers or big players such as H-L will do.

Most of the big players have already announced their unbundled charging structure. All have an annual plus a percentage (based on amount invested) platform fee. Only HL have still to announce their charging structure.

When the charges can't any longer be hidden away in commission, which gave the impression the service was cost free, then the full cost of the service should become clearer and that should put downward pressure on fees.

I agree that costs should be made transparent but so far I can't see it bringing fees down for the smaller investor.

dunstonh

So, what's to stop an IFA from sending all the various lenders a letter stating that he will remove their products from his list of available products unless they pay an administration charge of £1,000 per annum. This is and admin fee, not commission.

RDR doesnt affect mortgages or insurance. However, assuming you typing "lenders" was a typo, then the rules are that it will not be allowed for investment class business. However, they can and will be allowed to lower their charges for different distribution channels just as they can do already.

db7

I have an Investment Bond with AXA that I bought through an IFA who received a hefty amount of commission when he sold it to me and a small amount of commission every year that I have it. What will happen to that annual commission? Will the new rules affect that?

Thanks

db

jem16

db7 wrote: »

I have an Investment Bond with AXA that I bought through an IFA who received a hefty amount of commission when he sold it to me and a small amount of commission every year that I have it. What will happen to that annual commission? Will the new rules affect that?

Thanks

db

As far as I'm aware trail commission will continue for investments already in place unless you and your IFA come to alternative arrangements.

dunstonh

I have an Investment Bond with AXA that I bought through an IFA who received a hefty amount of commission when he sold it to me and a small amount of commission every year that I have it. What will happen to that annual commission? Will the new rules affect that?

investment bonds using insurance company funds do not pay trail commission. Any ongoing commission is either paid due a reduced initial commission being paid and is therefore funded by the insurance company and not the individual (which is costed in the fund charges) or made via an explicit charge. The commission will continue until the bond ceases.