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

jem16

gadgetmind wrote: »

I'm pretty confident that it will in time result in it being able to compare products and will drive down fees.

I really do hope you are correct. However it didn't eactly happen with the Energy suppliers, did it?

Loads of IFAs are threatening to quite, and if they do, that's fewer mouths to feed.

With fewer IFAs recommending their products, it might have the opposite effect and drive up fees to cover the lost revenue.

At the moment it's all speculation.

jamesd

jem16 wrote: »

How do you feel those two will change with explicit charges?

Explicit charges may eliminate the option for the platform provider to decide the split. If not it will at least make it explicit rather than something that has to be requested, often with resistance to answering the question.

The provider still gets to decide what fund classes to offer but there may be increased scope for disclosure to make people aware of different classes and charges.

jamesd

Paying fees from the product can be good. If it's from a pension it means the fees can be paid out of money with tax relief provided, an up to 50% effective discount.

Some providers, like Transact, let their unbundled fees be paid out of a separate fee account, keeping more money inside the ISA wrapper or pension, both of which have annual limits. So unbundled charging can make it possible to make better use of the tax wrappers.

Lokolo

Rollinghome wrote: »

Paying £49 to invest £3k on top of all the other costs would be nuts. If you have bought managed unit trusts from HL your total costs to invest will already be way, way more than £15 to £20. But even with £3k, you can currently invest for 0.40% amc or less with no other charges and you will still be able to do that post RDR. If there are people determined to pay more they will still be able to.

So HL won't charge me for their services?

I am looking at what HL charge, not what the fund costs outside of HL.

1.25% AMC, lets say HL gets 0.75% of that, its £20. So HL get off me, £20 a year.

post RDR they won't get that £20 a year, instead they will have a different charging structure, which from my previous post you will see can add up to around £49 (with CoFunds), effectively costing me more than double what I am paying now on my £3k portfolio.

As jem pointed out about 2 posts after, currently with the charging structure as it is, it means those that have larger portfolios pay for those that have small, so it means the smaller people can still have a chance.

As to why me having a small portfolio, I have £19k in savings and the rest (£3k) is my fund money which I am continuing to invest in each month. You gotta start somewhere

jamesd

Or the people with bigger funds can go elsewhere, costing HL the more valuable part of its customer base. Say me, where their revenue is more than twenty times their revenue from you. But if HL wants their business there's nothing stopping them from having a loss leader that makes it free for smaller amounts, to encourage new business like yours that can grow over time. It's the sort of thing that a canny player like HL might do.

One of the objectives the FSA has is to eliminate cross-subsidies like the one you're benefiting from.

You're not fully losing out, though. Investing early gives you more years of compound growth and then you'll end up benefiting from the lower charges with more money later.

Lokolo

As long as i make the right investment choices

gadgetmind

jamesd wrote: »

So unbundled charging can make it possible to make better use of the tax wrappers.

Which can only be a good thing.

Rollinghome

Lokolo wrote: »

So HL won't charge me for their services?

I am looking at what HL charge, not what the fund costs outside of HL.

I'm afraid HL will charge you for their services - and if you aren't looking at the overall cost of investing and the return then you should be.

But as James has pointed out, what they charge you and everyone else will be determined primarily by the competition. (They may also make the business decision to attract the small fry in the hope they will one day become bigger fish, or they may not.) Whatever, the overall cost of investment using their services will have to show value compared with directly held equities including ITs, low cost index tracker funds direct from the managers, and of course cash. Otherwise even the stupidest investors will go elsewhere.

Even more so when investment managers are no longer able to bump up the sales of their most expensive products by paying large dollops of commission to IFAs. Post RDR, IFAs will be more inclined to recommend investment routes that offer good value rather than just those that pay them commission.

So if HL don't want your business any more, which I doubt will happen, and the cost of investing through them becomes unattractive, invest in another more cost-effective way. That's what investing is all about. There's more to it than just buying managed retail unit trusts from HL.

gadgetmind

Rollinghome wrote: »

Whatever, the overall cost of investment using their services will have to show value compared with directly held equities including ITs, low cost index tracker funds direct from the managers, and of course cash. Otherwise even the stupidest investors will go elsewhere.

Sadly, you can't go it alone in this way for ISAs and pensions.

oldvicar

gadgetmind wrote: »

Sadly, you can't go it alone in this way for ISAs and pensions.

Very sad. But ever wondered WHY NOT?

Maybe we should ask Martin to start one of those 100,000 petition thingumybobs. :money:

But then we'd be responsible and have no-one to claim compo from if mis-sold ... and doesn't Martin believes the law needs to protect us (even from ourselves) given his evidence to parliament.