New Passive Investor screwed by iii - where to transfer to?

grey_gym_sock

jimmyjones wrote: »

dunstonh, are you suggesting that all platforms (e.g. cavendish) will implement a similar charge to iii.co.uk in the not too distant future?

i'm not dunstonh, but ...

fundsnetwork (whose platform cavendish use) is being paid by platform commission (and sharing 0.05% with cavendish). if/when that's abolished, i think their plan was to explicitly charge 0.25% instead.

so, new charges, yes. same charging structure as iii, no.

(abolishing trail commission won't affect cavendish, as they rebate it all. there'll just be no rebate.)

Perelandra

grey_gym_sock wrote: »

so, new charges, yes. same charging structure as iii, no.

(abolishing trail commission won't affect cavendish, as they rebate it all. there'll just be no rebate.)

(and possibly a charge from Cavendish, as they have to make a profit somewhere, which they wouldn't be able to do if there was no platform commission being passed on to them form fundsnetwork any more.)

However, as long as the charging structure is percentage based, and assuming that the funds and industry play fair (HA!), any increases in broker fees should- directionally- be offset by reductions in the funds annual management charges. At least, I assume that's the idea!

What it means for trackers, I don't know. From dunston's post, I fear the worst there.

pqrdef

dunstonh wrote: »

What it stupid about it?

Well percentage-based fees are rarely a reflection of true costs, but they remain popular in the finance sector, for good reasons.

This II thing is a bit strange. If an investor has £200K in funds producing 0.5% trail, that's £1000 a year, which II currently keeps. In future they'll rebate all of that, in return for £80 in fees.

This looks a bit suicidal, but perhaps they don't have too many clients in that category. Perhaps they'd like more, though they'll be a lot less profitable in future, and they could get them by offering flat-rate charging as an option.

But it seems like if they want to come out square they'll need to retain an awful lot of customers who will pay more under the new model than they would have paid in dealing commissions and/or trail. Mostly the small fry.

Keeping them will be especially hard because many of them thought II was truly free. They were never told how much the trail was, and they still don't know what they'll get in rebated trail to set against the fee.

So II have apparently set out to alienate the segment where their fee-free model has made them a leading choice

dunstonh

the new charge also applies to accounts containing no funds, just shares. in this case, RDR has nothing to do with it.

Yes it does because the FSA wants no difference in charges irrespective of the investment type used (other than dealing costs).

dunstonh, are you suggesting that all platforms (e.g. cavendish) will implement a similar charge to iii.co.uk in the not too distant future?

Yes. They will have no choice in the matter. They will not be able to derive any income from the investments or fund house. So, if they dont charge you explicitly then they wont get any income.

fundsnetwork (whose platform cavendish use) is being paid by platform commission (and sharing 0.05% with cavendish). if/when that's abolished, i think their plan was to explicitly charge 0.25% instead.

so, new charges, yes. same charging structure as iii, no.

Cofunds and Fidelity are currently fund supermarkets rather than whole of market platforms. The expectation is that the 0.25% is too cheap and has been said to encourage people not to move from them. However, many expect them to come in with a higher charge when they do finally release their charges formally or have a range of charges for different services. So, instead of being an "all in" charge, it will be 0.25% plus charges for this that and the other.

Well percentage-based fees are rarely a reflection of true costs, but they remain popular in the finance sector, for good reasons.

Cross subsidy has been the main reason. Large investors cover the costs of the smaller ones who individually are likely to be loss making.

The platforms that have been unbundled for some time do typically tier the charges now so larger investors pay less and smaller investors pay more.

dunstonh

Here is a copy and paste of the FSA's objectives on the platform review (I have highlighted a few things for speed readers):

To enable greater transparency and efficiency in the market, the rules:

require investment adviser firms using a platform service for the purposes of making a personal recommendation, or arranging the purchase of retail investment products for retail clients, to take reasonable steps to ensure that they use platforms services that present their retail investment products without bias;

require platforms to disclose to professional and retail clients any fees or commission they arrange to accept from third parties in relation to retail investment products. These should be disclosed in advance of the platform providing services to those clients;

extend the application of the RDR rules on facilitating payment of adviser charges to facilitation through platforms - for instance, if a platform has client cash accounts, it could enable payments of adviser charges out of such accounts; and

require nominees to respond to information requests by authorised fund managers for liquidity purposes.

In respect of incentives, the FSA has decided that it would be desirable, in principle, to ban both cash rebates from product providers to investors and product provider payments to platforms. However, given the potential impact of these changes on the business models of platform service providers, the FSA has concluded that further research is needed to ensure that the implications for consumers are fully understood before proposing new rules.

http://www.fsa.gov.uk/library/communication/pr/2011/067.shtml

Changes are still ongoing and further updates which could see backtracking could occur.

RalphS

grey_gym_sock wrote: »

you could buy the HSBC trackers directly with HSBC. however, they don't accept transfers-in of ISAs.

Where does it say, they don't accept transfers-in of ISAs?

Quote
However, if you have money saved in any cash or stocks and shares ISA from previous tax years or the current tax year, you can transfer this into a new stocks and shares ISA without affecting your current tax years ISA allowance, either in full or part, however any subscriptions made in the current tax year, must be transferred in full.

rpc

grey_gym_sock wrote: »

the new charge also applies to accounts containing no funds, just shares. in this case, RDR has nothing to do with it.

Those accounts cost money to maintain, which previously came from commission paid by funds in other accounts. It was a cross-subsidy of some accounts by others. That cross-subsidy is being removed, so everyone pays on equal terms.

premierfella

RalphS wrote: »

Where does it say, they don't accept transfers-in of ISAs?

I suspect grey gym sock is referring to HSBC's ISA Funds Portfolio via their Global Investment Centre, which it appears does not (yet?) accept transfers in according to the key features document.

I think HSBC has other ISA options outside the Global Investment Centre that will certainly accept transfers in (I honestly don't know if the cheap HSBC trackers are available via those other options at the same cost - they may or may not be).

grey_gym_sock

yes, HSBC's Funds Portfolio doesn't accept ISA transfers: http://www.hsbc.co.uk/content_static/en/pdfs/en/kf_funds_portfolio_and_isa_funds_portfolio.pdf

HSBC also have InvestDirect ISAs, but i don't think you can buy their trackers in that: it's seems to be for quoted shares.

grey_gym_sock

dunstonh wrote: »

the new charge also applies to accounts containing no funds, just shares. in this case, RDR has nothing to do with it.

Yes it does because the FSA wants no difference in charges irrespective of the investment type used (other than dealing costs).

that's interesting. why are they happy for dealing charges to vary?

as it happens, iii are at the same time introducing dealing charges for funds, at the same rates they already charge for shares, so they will have exactly the same charges for funds and shares.

are the costs to a platform for holding shares or funds very similar? (and what about for dealing shares or funds?) because if the costs are different, i don't see why the charges shouldn't be.

i do agree with the FSA that all charges should be explicit.

what about the interest that platforms make from cash deposits (on top of whatever they pay to the account holders, if anything)? does the FSA want this charge to be explicit, too? if not, why not?

rpc wrote: »

Those accounts cost money to maintain, which previously came from commission paid by funds in other accounts. It was a cross-subsidy of some accounts by others. That cross-subsidy is being removed, so everyone pays on equal terms.

it's not obvious that accounts holding shares are being subsidized by accounts holding funds. accounts that hold only shares and trade rarely and have minimal cash are being subsidized, but perhaps by the trading commissions of accounts that trade more often, and by the interest iii gain on accounts with higher cash balances.