iii introducing quarterly £20 charge

drmdmcgwn64

samwardill wrote: »

Is this true for ISA too? I chose iii initially (and now Selftrade) because I was attracted by £1.50 / trade for regular shares investment in an ISA. Is there a broker who offers anything similar?

I moved to iWeb. They have a similar regular investment rate of £2 on set dates so I assume there is something similar for ISA. Might be worth a look.
There is a link for comparisons earlier in this thread.

drmdmcgwn64

dunstonh wrote: »

if you dont need platform services then consider moving to a broker. If you move to another platform who has yet to implement RDR/platform review changes yet then you are just putting yourself through another change when they do.

Most people who are shares only and small value probably dont need a platform.

Can someone explain all this in extremely simplified terms to me? or point me to somewhere where it is explained in a simple and concise form?
From what I gather this RDR and platform charges are only to do with Funds and not quoted stocks/shares?
Is this correct?
Is III's whole repricing because of RDR and funds but they are also lumbering people with ordinary share accounts with the same fees/charges?

Sorry for the dumb seeming questions.

dunstonh

From what I gather this RDR and platform charges are only to do with Funds and not quoted stocks/shares?
Is this correct?

No.

First thing is to understand bundled pricing and unbundled pricing. Unit Trust and OEICs have historically been bundled pricing. You have the cost of management, retail and advice bundled into the AMC. Investment trusts, ETFs and shares are unbundled. The retail and advice costs were not included but charged on top.

The plan is to make all investments unbundled.

The RDR is only do with advisers. However, it is having a knock on effect with funds which in turn is having a knock on effect with platforms. The platform review was meant to come in with the RDR but has been put back. So, it brought in a staggered change which is allowing some platforms to creep changes in whilst others have taken the full step to implement the changes now (or as much as they can now).

RDR:
This will see the removal of trail commission from investment funds that pay it. The idea is that the IFA will set their remuneration and will charge it explicitly for providing services instead if the fund house deciding what the IFA gets. Basically it levels the playing field and removes any potential for bias.

Platform review

Platforms are currently paid money to market funds or put them on platform. The amount paid is negotiated with the fund houses and varies with each fund house and platform. This information is not disclosed to investors. In old form, platforms also got a cut of the annual management charge. Again, this amount varied and was not disclosed. The platform review abolishes that and brings in explicit charges for services provided. No commissions, no hidden payments.

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In theory the RDR should not effect DIY investors. However, a number of the platforms keep some or all of the advice commission that is being abolished. e.g. HL keep most or all of it currently. So, when this is turned off for new business they either have to accept the loss or replace it with a new charge. Then when platform review is completed, they wont be able to be paid commissions by the fund houses. So, unless they charge people explicitly, they will have no income on new business.

The fund houses have mainly been issuing clean share classes in response to the changes. A few have issued non-trail versions which still pay hidden commissions to platforms (with a view to bringing in clean versions later) but most are going to clean share prices straight away. This is forcing platforms to make changes earlier as they would ideally like another year or two to build up their books with pre change investments that pay them hidden commissions.

The other issue, and it is one that impacts a lot on passive investors or direct investors is that the bundled platforms were typcally offering non-commission paying funds or brokerage services at a loss or on the cheap. This was cross subsidised by those investing in managed funds. With those commissions turned off for new business, direct investments and passives will have to pay their own way and no longer rely on that cross subsidy.

This ends up with platforms charging say 0.45% for investments on platform irrespective of their type. This is an explicit charge. For a passive investor used to the cross subsidy, that is a 0.45% increase. For a managed fund investor used to paying 1.75% TER previously but now paying 0.75% for that fund, the extra 0.45% platform charge gives them a net saving of 0.55% pa.

There are people who took advantage of that cross subsidy and platforms offering cheap brokerage in the hope you may buy some managed funds as well. They didnt want or need platform services. However, they used them out of the cost which was low due to that cross subsidy. They will either have to decide to pay more or come off platform and use brokerage services (like in the past).

Smaller investors will be losers as well. The old system again used cross subsidy with larger investors paying more in charges than smaller ones despite the platforms generally having similar workloads irrespective of value. Most platforms have gone with tiered charges which see the more you have on platform resulting in the lower charges you pay relative to your value. The models that have changed have seen small holdings pay more, medium about the same and large holdings pay less.

The bottom line in a very short summary is that the aim is to have the different levels all charging explicitly for their services irrespective of the type of investments used (bar things like dealing costs which cannot be universal). in future you will need to think of the charging levels as:
1 - platform/provider or retailer
2 - adviser (if used)
3 - investment

Hence why it will impact on all investments with some gainers and some losers.

Forever

Thank you for the breakdown Dunstoh.

I have actually just received this email from HL regarding the RDR and platform fees.

I hope, as they indicate below, that the FSA will decide not to implement these RDR rules as it will prevent small-time investors or those new to investing from investing. It just wouldn't be financially worth it for them whilst the rules would greatly benefit those who already have a lot of money invested.

"Thank you for your e-mail regarding RDR.

In the Financial Services Authority’s (FSA) August 2011 policy statement: ‘Delivering the RDR and other issues for platforms and nominee-related services’, the regulator stated the following:

'We [the FSA] have decided that it would be desirable in principle to ban payments by product providers to platforms. However, we accept that there could be possible unintended consequences which might arise that are not yet fully understood. So although this is our intention, we have not yet made rules to introduce a ban of either kind of payment’.

It was also noted however ''that at least part of the activities that platforms carried out constituted an administration service to providers, in the sense that the platforms carried out tasks that product providers would otherwise have to undertake themselves' and that 'where this was the case, it seemed reasonable that platforms should be able to charge (fund management groups) for these services'.

To date no final decision has yet been made and the FSA intend to carry out further research. They have however said that any rule change would not come into effect until at least Jan 2013.
If the payment of trail commissions to platforms such as our own were to be disallowed, we would anticipate that this would be an all-encompassing restriction applicable to all holdings on our platform. If this were to indeed be the case, no trail commission would be received and hence no Loyalty Bonus would be payable to clients on any investments.

Again we would stress that the policy statement remains provisional at this stage, and no further announcement has been made. We envisage that whatever the final outcome clients would not be materially affected in terms of charges. If we could not take revenues from fund groups we would suggest they reduce their prices instead and introduce some small charges to clients in order to compensate. What these charges might be, or the way they might be levied, is something that we cannot comment on at this time. "

dunstonh

I hope, as they indicate below, that the FSA will decide not to implement these RDR rules as it will prevent small-time investors or those new to investing from investing. It just wouldn't be financially worth it for them whilst the rules would greatly benefit those who already have a lot of money invested.

The RDR starts in just under 3 months time and has been underway for over 5 years. It is going to happen. Providers have already launched RDR compliant products and fund houses are already issuing or are ready to launch clean share classes.

The platform review is a year behind and some of the platforms that rely on commissions and managed funds cross subsidising others are continuing to push the FSA to change its mind. However, the Consumer Panel and all consumer groups want the platform review to continue as it is beneficial for most people. The only losers are those that benefit from an unfair cross subsidy.

Some platforms seem to want the fund houses to carry on paying the platform but reduce the fund charges. i.e. they take the hit, not the platform. You just cant see that happening. It should also be noted that whilst HL are a big player they are not the biggest and collectively, most platforms have moved to unbundled or about to launch their unbundled platform. It is only the greedy dinosaurs left that havent.

Forever

But if say, the yearly fee is going to be 80 pounds on average for all platform holders, that means that for those who invest say 500 pounds in their first year are going to be paying 16% in annual charges which is ridiculous!

If someone invested the ISA allowance of 5,640 in a year, at least the annual charge goes down to 1.41% but then there are still the fund fees too... It is still all adding up.

Those who invested awhile ago and already sitting on reasonable pots are going to be the winners here. Those who are new or don't invest significant amounts are going to be the losers.

dunstonh

But if say, the yearly fee is going to be 80 pounds on average for all platform holders, that means that for those who invest say 500 pounds in their first year are going to be paying 16% in annual charges which is ridiculous!

Correct. So, either do not use a platform that has a fixed monetary fee but use one with a percentage. e.g. 0.55% Or don't use platform.

If someone invested the ISA allowance of 5,640 in a year, at least the annual charge goes down to 1.41% but then there are still the fund fees too... It is still all adding up.

Funds charge reductions are seeing 1.5% AMC funds dropping to around 0.75%.

Those who invested awhile ago and already sitting on reasonable pots are going to be the winners here. Those who are new or don't invest significant amounts are going to be the losers.

Some people can afford prestige cars. Some cant. Such is the nature of retail. Platforms are the same. If you cant afford it then dont use one. You dont have to.

Forever

dunstonh wrote: »

Correct. So, either do not use a platform that has a fixed monetary fee but use one with a percentage. e.g. 0.55% Or don't use platform.



Funds charge reductions are seeing 1.5% AMC funds dropping to around 0.75%.



Some people can afford prestige cars. Some cant. Such is the nature of retail. Platforms are the same. If you cant afford it then dont use one. You dont have to.

I hope some platforms do use a percentage fee as this seems fairer than a fixed fee which benefits those with large holdings versus those who don't have large holdings or want to experiment first without investing a large sum.

If annual fund charges are being reduced from 1.5 to 0.75 on average, that isn't too bad actually and interestingly, will put them more or less in line with IT charges.

So from what you are saying, if I consider that platform fees end up being too high everywhere, am I right in thinking that I potentially could take my unit trust investments in my S&S ISA and hold onto the funds myself?

If so, it could be a case of weighing up which is better; the potential tax bill or platform fees + ease of using a platform.

dunstonh

I hope some platforms do use a percentage fee as this seems fairer than a fixed fee which benefits those with large holdings versus those who don't have large holdings or want to experiment first without investing a large sum.

There are already unbundled platforms that have been working on percentage only basis for a while. Some are going small fee and smaller percentage whilst others are going large fee and even smaller percentage or fixed amount.

If annual fund charges are being reduced from 1.5 to 0.75 on average, that isn't too bad actually and interestingly, will put them more or less in line with IT charges.

Most clean priced TERs on OEICs are now comparable to their nearest comparable IT. Not a surprise really.

So from what you are saying, if I consider that platform fees end up being too high everywhere, am I right in thinking that I potentially could take my unit trust investments in my S&S ISA and hold onto the funds myself?

The direct to fund house option will quite probably be the route that some consider again. A bit full circle on this one really. Some fund houses are getting into bed with some platforms and negotiating improved terms. That could be a development. Another one is that buying direct could see some fund houses add on a charge to cover their own retail costs. Therefore they not only get the benefit of the fund charge but also a retail charge.

If so, it could be a case of weighing up which is better; the potential tax bill or platform fees + ease of using a platform.

That is something the advice market has been dealing with for the last 18-24 months. it equally applies to the DIY market. Many fund houses do offer an in-house ISA at no extra cost. So, tax isnt usually an issue unless you are selling and your holdings are outside of a tax wrapper.

Forever

It's a shame that I am holding on to a handful of funds from different fund houses if I can escape platform fees by holding funds direct in an ISA with a fund house. But this is something to definitely keep in mind and something to consider for any future investment choices over the next two years.

It's also interesting that outside of a wrapper, I will only need to pay tax when I want to pull the money out of a fund and not before. So if I am not taxable at the time of pulling the money out, I wouldn't need to pay any tax which could suit me very well too.

If there are platforms out there that charge a percentage fee, I would be interested in these and then calculating whether I am better off with percentage or fixed like iii.

So apart from keeping an eye out of what the cost implications are for RDR, you also need to ensure in the meantime that any platform you sign up with has a free transfer-out fee for just in case you need to change providers.