trail commission

bubblybabe

Hello

I am a bit muddled with whether trail commission from brokers eg Cavendish ,will carry on after 2013 for exising investments eg in legal and general

sorry to be a little dense on this:(

thank you in advance if anyone knoows the answer


x

dunstonh

I am a bit muddled with whether trail commission from brokers eg Cavendish ,will carry on after 2013 for exising investments eg in legal and general

All new purchases (or fund switches) will see the new funds pay no natural trail. However, they can still pay a platform commission for another year or so (platform review is running behind). Any existing funds will continue to pay trail until a fund change is made.

However, the bigger thing to be aware of is that commission based platforms (like those used by Cavendish) will have to introduce explicit charges once the platform review is completed (and assuming the FSA do not U Turn).

ISASIPPMan

Is this related to RDR? I think they will still charge trail or equivalent. They will need to make money somehow

dunstonh

ISASIPPMan wrote: »

Is this related to RDR? I think they will still charge trail or equivalent. They will need to make money somehow

RDR will end the adviser/retailer natural trail and replace it with an explicit charge (which could be zero). However, the next stage is the platform review which was originally planned to come in at the same time as RDR but fell behind.

It is the platform review that is likely to do more damage to DIY investors than the RDR.

psychic_teabag

bubblybabe wrote: »

I am a bit muddled with whether trail commission from brokers eg Cavendish ,will carry on after 2013 for exising investments eg in legal and general

Not quite sure why you picked out Cavendish here... they take the role of the financial adviser ("arranger" ?) who receives the trail commission, and chooses to refund it to you. AFAIK the problem the RDR is trying to solve is that it is deducted in the first place by the fund manager and given (via the platform) to the IFA.

Chris75

I am currently with the Funds Network ISA platform and am considering moving to one of the cheaper bestinvest/cavendish/alliance platforms.

If I am right in thinking that all these platforms will need to review their charging in 2013 is there any indication of which platforms are likely to be the best choice for someone who does not want to keep changing. I don't see how anyone can make an informed choice at the present time.

Change now & hope 2013 doesn't change the best choice or wait?

What exactly is the platform review that might damage DIY investors?

dunstonh

If I am right in thinking that all these platforms will need to review their charging in 2013 is there any indication of which platforms are likely to be the best choice for someone who does not want to keep changing. I don't see how anyone can make an informed choice at the present time.

Unbundled platforms will require far less change as they are in common with the FSA objectives. They will need tweaks but their model fits the current known information. Bundled platforms will see the biggest challenges as they rely on hidden and undisclosed commissions to fund them. This will not be allowed for new business post platform review (which would also include fund switches etc)

Most of the DIY platforms are the bundled type that have the hidden commissions. e.g. Fidelity, Cofunds, HL.

Whilst it may seem strange that the platform review may appear to put charges up for most investors, it is not as simple as that. There are some of the issues
1 - bundled platforms only offer commission paying funds and maybe a few loss leaders. That creates bias. especially on lists generated promoting funds.
2 - you dont know what these commissions are and they vary between fund house and platform
3 - the origin of these commissions was back in a time where fund houses didnt see the platforms taking their direct business but saw it as incremental. So, some fund houses are paying very large amounts nowadays and this has led to charges going up.

Platform review should see charges coming down as the fund house wont by paying platforms anything but instead the platform will set its own charges. However, for investments that are not commission paying but sold as loss leaders, their cost will go up as they will not allowed to be cross subsidised by the commission paying funds.

On the whole, the bottom line is that that the charges should reduce slightly for managed funds within a few years but increase for trackers on platform. It may be that you have to start going back to the old model of buying direct from fund house. Although some fund houses are in bed with the platform (same parent company) and will waive the platform charge if you buy those funds via that platform.

The bundled platforms are lobbying the FSA to get them to change their mind. However, Consumer Focus (who carry enormous weight) and other consumer bodies want it changed. The unbundled platforms want it changed as well as they are already working that way. The last FSA paper said it would change but they havent yet decided how it will be implemented. Just that it will happen. There is another paper due soon on this.

At this stage, it will be important to find out if the platform you are on allows exit without penalty and can do re-registration of your investments in situ (i.e. dont need to sell your investments but can re-register the platform should you decide to move later). It is also important to know what type of platform you have so you can keep an eye on events.

psychic_teabag

Chris75 wrote: »

I am currently with the Funds Network ISA platform and am considering moving to one of the cheaper bestinvest/cavendish/alliance platforms.

Changing to Cavendish just means a change of agent, since they (can) use the Fidelity platform. No transfer or re-registration required. And Cavendish are currently waiving their one-time fee.

So my inclination would be to do that now, and then wait to see what happens next year.

BestInvest have charges to both transfer out of an ISA and to close one : that put me off joining them recently with all the imminent changes. But ISTR someone on here suggesting that the rule changes may also mean abolishing transfer-out and exit charges ..?

I don't know about the alliance platform.

See also https://forums.moneysavingexpert.com/discussion/3153942

mbailey

Am I right in thinking that if the funds are not allowed to pay the platform charges out of the funds, we should see an increase in the growth rates of the funds, which should in turn give us the money to pay the IFA and platform charges, so we end up in the same situation as we were in to start with, but the charges are all out in the open?

jem16

mbailey wrote: »

Am I right in thinking that if the funds are not allowed to pay the platform charges out of the funds, we should see an increase in the growth rates of the funds, which should in turn give us the money to pay the IFA and platform charges, so we end up in the same situation as we were in to start with, but the charges are all out in the open?

More or less.

However it all boils down to what the platform and IFA charges are going to be as to whether you will be better off, worse off or exactly the same.

Linton

mbailey wrote: »

Am I right in thinking that if the funds are not allowed to pay the platform charges out of the funds, we should see an increase in the growth rates of the funds, which should in turn give us the money to pay the IFA and platform charges, so we end up in the same situation as we were in to start with, but the charges are all out in the open?

That I believe is the theory. However it cant really be tested as when the new arrangements come in there is no way of knowing how things would have turned out under the old ones.

I guess it is the small investor who will suffer and the large one will gain. Once a platform and its customer support has been set up, a large scale investor does not cost the platform provider much more than a small one. At the moment ISTM the small investor is being subsidised by the fees extracted from the large investors investments. Under the new schemes presumably the fees will move more towards flat rate charges.