Platform News: FSA confirm ban on platform rebates

oldfella

if I a currently receiving 0.5% annual rebate, am I likely to do better by opting for the post RDR setup ?

dunstonh

oldfella wrote: »

if I a currently receiving 0.5% annual rebate, am I likely to do better by opting for the post RDR setup ?

The 0.5% rebate is probably the IFA trail commission that ends with RDR. The platform commission is what is ending with the platform review. Typically a further 0.25%-0.5%. Are you getting that rebated too?

gadgetmind

dunstonh wrote: »

Post RDR/platform review, their charges need to rise or risk going under or they need volume.

Or they need to get leaner. It's amazing how often the financial services industry forgets that cost cutting is an option when it's a key core skill of most other industries.

oldfella

dunstonh wrote: »

The 0.5% rebate is probably the IFA trail commission that ends with RDR. The platform commission is what is ending with the platform review. Typically a further 0.25%-0.5%. Are you getting that rebated too?

I am with Cavendish/Fidelity so I get up front charges rebated + the 0.5% annual rebate. Presumably some part of the currently retained commission will be converted to a charge ?

Is it going to be clear which is the best course ?

Rollinghome

oldfella wrote: »

I am with Cavendish/Fidelity so I get up front charges + 0.5% annual rebate. Presumably some part of the currently retained commission will be converted to a charge ?

Is it going to be clear which is the best course ?

With Cavendish/Fidelity, Cavendish have arranged for Fidelity to rebate to you all the trail commission from your fund charges that would normally have gone to them as intermediaries. That will range between 0% for trackers to 0.5% for managed funds.

In addition to the trail commission, the fund managers typically pay another 0.25% to the platform provider which is Fidelity. Cavendish make their profit from a special arrangement whereby they get a small cut from Fidelity's platform fee of 0.05%. No commission as such is retained, just the platform fee.

It now looks as if the fund managers will be stopped from paying platform fees from your AMC from the end of next year so Fidelity will presumably need to ask you for a fee of some kind to cover that lost 0.25%. Exactly what they do will largely be determined by what the competition does. The various parties will be setting up their stalls from this point on but there could be readjustments as they see the effect and it could be a couple of years before the dust finally settles.

In the mean time it will pay to make sure there's an easy exit from any agreement without too much cost.

xylophone

Response from H-L

" The Financial Services Authority (FSA) have today published a consultation paper regarding the payment of renewal commission to platforms. In response to this our Chief Executive, Ian Gorham, has made a press release which I have included the relevant parts of below:

The FSA's position does not come as a surprise, and our planning has been focussed on a "no payments to Platforms" outcome.

The latest Paper is a consultation paper and clarity will not be available until the FSA issues a final Policy Statement. We firmly believe our business model is flexible enough to deal with any changes we may need to make when the FSA finalise their rules. We are confident we have solutions that will work for our clients.

We will continue to engage with the FSA during the consultation period. We do not anticipate announcing any changes to our business or our charges until after clarity is provided in the final policy statement.

We remain relaxed about the overall outcomes of the Retail Distribution Review. Whilst the RDR may have become rather over-complicated and drawn out, its original principles were laudable and it should hold no fears for companies with a loyal and satisfied client base. Investing directly is becoming increasingly popular, is already excellent value for clients and Hargreaves Lansdown remains the market leader in providing this service. Our most recent client satisfaction survey has just confirmed 98% of clients rate the Hargreaves Lansdown service as good, very good or excellent. We expect to be able to continue to deliver strong growth in assets under administration.

Hargreaves Lansdown remains committed to offering retail investors the best prices, best service and best information."

If you would like to read the full press release you can do so by following the below link to our website:

http://www.hl.co.uk/investor-relations

oldfella

Rollinghome wrote: »

With Cavendish/Fidelity, Cavendish have arranged for Fidelity to rebate to you all the trail commission from your fund charges that would normally have gone to them as intermediaries. That will range between 0% for trackers to 0.5% for managed funds.

In addition to the trail commission, the fund managers typically pay another 0.25% to the platform provider which is Fidelity. Cavendish make their profit from a special arrangement whereby they get a small cut from Fidelity's platform fee of 0.05%. No commission as such is retained, just the platform fee.

It now looks as if the fund managers will be stopped from paying platform fees from your AMC from the end of next year so Fidelity will presumably need to ask you for a fee of some kind to cover that lost 0.25%. Exactly what they do will largely be determined by what the competition does. The various parties will be setting up their stalls from this point on but there could be readjustments as they see the effect and it could be a couple of years before the dust finally settles.

In the mean time it will pay to make sure there's an easy exit from any agreement without too much cost.

many thanks.
Cavendish are a broker so withdrawal from that relationship is I think just a declaration. As I understand it the platforms usually offer discounts to offset transfer fees, presumably that will continue post RDR?

gadgetmind

Rollinghome wrote: »

The various parties will be setting up their stalls from this point on but there could be readjustments as they see the effect and it could be a couple of years before the dust finally settles.

I have deliberately chosen platforms that already have stated fees for various holdings that don't give them kick-backs in the hope that there will be little/no change moving forwards for us.

Charges for S&S ISAs are coming in at figures like £24 (single tracker with HL), £45 (cap on 0.5% for equities on HL), and £60 (BestInvest all-you-can-eat custody fee) with SIPPs coming in higher with £120 to £200 per year being typical. I don't know numbers of other platforms off the top of my head, but they were in this ball park.

However ...

In the mean time it will pay to make sure there's an easy exit from any agreement without too much cost.

This is still very important!

koru

Which firms have low exit fees? I know that TD Direct has a single fee for transferring out an ISA, regardless of the number of funds within the ISA wrapper. But you pay a fee per investment for transferring unwrapped investments. Trouble is, TD Direct has a restricted product range (e.g., no Vanguard funds and no Troy funds).

As well as exit fees, you also need to think about exit options. I would not even consider any company that will not do a transfer in specie. If you have to sell the investment and then repurchase through another firm, you are likely to be out of the market in the interim and could therefore make a big loss if the price rises between selling and repurchasing. This would also mean that you would trigger any latent capital gain and might therefore end up suffering CGT.

koru

Does anyone know what will happen with existing investments? I assume that platforms/brokers will not be obliged to switch existing investments to the new clean fund classes. And I assume that they will not do this voluntarily.

If the new clean fund classes have an AMC of 0.75% in most cases, this is equivalent to a rebate of 0.75%, which is better than anyone is offering on most funds (barring a few exceptions such as Aberdeen funds). Therefore, I am assuming that I'm going to want to switch my existing investments to the clean fund class. Am I right in thinking that there will be nothing to stop me doing this, other than the dealing charge to sell the old fund class and buy the new fund class?

If so, then this is another factor to bear in mind in choosing which platform to be on over the next few months. This switch would cost £25 per fund at ATS, £20 per fund at iii, whereas the likes of HL, Cavendish/Funds Network currently charge nothing to buy and sell funds. However, can you rely upon this to remain the case once commission-free fund classes appear? Surely they will introduce a dealing charge, just like ATS and iii?