Platform News: FSA confirm ban on platform rebates

gadgetmind

dunstonh wrote: »

Passive funds and trackers will no longer be able to be cross subsidised by the managed funds as they currently are on most bundled platforms. They will be the biggest losers.

Many platforms are already switching to platform fees for these anyway, or at least for those worth holding.

Rollinghome

dunstonh wrote: »

Passive funds and trackers will no longer be able to be cross subsidised by the managed funds as they currently are on most bundled platforms. They will be the biggest losers.

L&G plain vanilla index trackers have been available directly from L&G for around 0.5% for the last 15-20 years so I see no reason for that to change. Similarly HSBC are available direct for 0.25% I believe.

If so, that should set a ceiling of sorts on what anyone else can charge. It might cause something of a problem for the likes of HL because their charges will be need to be the same across all funds and if that's set at too high a level for managed funds they could be uncompetitive for increasingly popular trackers.

For that reason I don't see any indication that the cost of low cost funds will necessarily go up even though that's being widely suggested. With luck they may even exert more downward pressure on managed fund charges especially with the commission differential for advisers being removed.

dunstonh

All this, plus the fact that smaller portfolio's will also be worse off does not bode well for the economy overall surely?

Small investors are peanuts. However, it just means that small investors will need to use more cost effective options, like plain brokerage services or direct to provider and not platforms geared for larger investors.

fimonkey

Plain brokerage services and direct to provider - what are they?! - I guess the latter is say HSBC - to hold the HSBC tracker, L&G for the L&G tracker etc - which would mean to invest in more than one low cost fund with different providers then you couldn't hold them all in the same ISA?

What about plain brokerage services, where di I find out more about those please?

grey_gym_sock

yes, holding HSBC trackers with HSBC, and so on, may turn out to be cheapest.

a plain brokerage roughly means a provider with whom you can buy just shares, not funds. the cheaper ones would include: x-o, and SVS securities. (however, they don't do regular dealing. i'm not sure if any plain brokerages do.)

premierfella

I'm not that sure that there is a need to necessarily flock to a plain brokerage. Providers such as Selftrade, SIPPDeal, TD, etc that currently offer more than just funds can surely reasonably be expected to price their service competitively for those holding only shares whilst offering a "platform" service for those who want a mix of investments.

Even iii's pricing change is in effect just a hybrid of the inactivity fee/annual fee models that many online brokers have had for years and which is seemingly viable. The only multi-investment "platforms" that could become unstable for share-only investors are those that try to price the fund side of their platform too cheaply or without sufficient scale to cover fixed costs, and they should be easy enough to spot once the dust settles?

gadgetmind

premierfella wrote: »

they should be easy enough to spot once the dust settles?

Yes, and until then, we're all guessing.

jem16

premierfella wrote: »

I'm not that sure that there is a need to necessarily flock to a plain brokerage. Providers such as Selftrade, SIPPDeal, TD, etc that currently offer more than just funds can surely reasonably be expected to price their service competitively for those holding only shares whilst offering a "platform" service for those who want a mix of investments.

What do they price it on though?

From what I can gather, the FSA want to have charges the sane regardless of the type of investment. For those who want a simple brokerage type service, the platform cost will be more expensive.

premierfella

Yes, I'm guessing indeed. No doubt I'll guess incorrectly! :rotfl:

"Charges the same" will in most cases equate to explicit charges for funds that previously had charges "hidden" in the AMC. The platform pricing structures in the future may thus have more explicit charges if holding funds and shares, but that does not necessarily mean that share-only accounts at large platforms (which of course at the very least already have dealing fees) should necessarily become more expensive.

However, it wouldn't be a surprise if the pricing models for XO brokers moved back towards inactivity fees and/or annual fees for share accounts as was commonplace many years ago (whether at platforms or execution-only share brokers). My reasoning is that, unless a significant number of brokers stay with a no-fee sharedealing model, brokers who don't apply annual or inactivity fees of some sort (e.g. X-O) could find themselves with the issue that iii may well have had (snowed under with unprofitable buy-and-hold inactive traders that don't earn them dealing fees). That model then stays sustainable only by cross-subsidy from a large number of active share traders (which of course X-O is aiming for with its low trading commission). There must be a limit to how many brokers can operate with sufficient mass in that way.

I think the above is a long-winded way of saying that whilst platforms getting income from fund commissions are near-certain to see pricing changes, XO brokers could also be forced to change their pricing for other reasons (such as attracting too many unprofitable XO share accounts as inactivity/annual fees are introduced elsewhere and buy-and-hold infrequent traders are displaced from elsewhere).

pqrdef

talexuser wrote: »

but the growth on your funds will theoretically be better due to lower charges?

Yes, we do truly believe that when all the performance graphs and tables are showing the new clean share classes, they will all go up that much faster, instead of being content to track their benchmarks like they do now.

So all the money not going into platform and trail commissions will really and truly get back to the investor and not somehow evaporate somewhere in the financial services industry.

(Repeat three times daily until convinced)