RDR/RDR2 - What does it imply?

bigfreddiel

Why did RDR happen and why is RDR2 happening?

Is it because the finance industry was fleecing their customers by lining their own pockets by selling commission based products?

IT sales are up compard to pre-RDR days - why is that? Have they suddenly become more desirable over other products that paid a commission?

It makes interesting reading seeing how financial professionals justified all their recommendations pre-RDR - hidden costs and all.

Now its all up front, we pay for advice if we want it, no hidden costs, we can feel a whole lot better about planning our finances I feel a whole lot better about it.

cheers and thanks RDR/RDR2

fj

pqrdef

Well it won't just be a case of picking the cheapest platform, otherwise we'd all pick it and all the others would go out of business.

With the old system, once you've decided on Inverness Perpetual Emerging Situations Acc, they're all selling the same share class at the daily price quoted on Yahoo and all you have to look at is the platform retainer and the kickback. And even that's complicated enough to make sure there's no clear winner.

Now, one platform may have a deal with a reduced AMC, but a withdrawal fee if you don't hold for 5 years. Another may have a reduced AMC, but with a performance fee if they go up. Another platform might only sell own-brand products - other people's funds with its own badge on, and all slightly differentiated so comparisons are impossible. Etc Etc. The City's finest experts are working on endless ways to bemuse and confuse.

Old City proverb: Those who can, do, those who can't, regulate, and those who can't regulate become chairmen of regulatory authorities.

Don't underestimate the ability of the regulators to shoot themselves in the head while aiming at their feet.

dunstonh

Why did RDR happen and why is RDR2 happening?

RDR was a step up towards increased professionalism. In a way though, it got left behind and the industry moved most of its products to fee basis 5 years before RDR. Yes, some exceptions but it was already trending that way.

Is it because the finance industry was fleecing their customers by lining their own pockets by selling commission based products?

Despite multiple reviews, there was never any evidence of that happening on a widespread basis. Indeed, post RDR, indications are that the cost of advice has gone up.

IT sales are up compard to pre-RDR days - why is that? Have they suddenly become more desirable over other products that paid a commission?

Most IFAs were not authorised to do ITs prior to RDR. Now they are. So, there would be some increase. However, clean UT/OEICs are frequently cheaper. Also, the platforms have started making ITs available.

It makes interesting reading seeing how financial professionals justified all their recommendations pre-RDR - hidden costs and all.

Very easily. You can only recommend what is on the table. Plus, costs today are actually a little harder to understand. Certainly more transparent but with so many different levels and share classes, rebates etc that it is actually harder for many people to follow compared to when it was just a bottom line cost. You buy a tin of beans and you pay the price on the tin. You dont see how much the manufacturer, tin maker, label maker, farmers, distributors etc are charging and then have to add that up all yourself.

donniej

RDR and RDR2 do make costs a lot clearer, which is a great thing.

However, a few downsides are:
- the changes cost the platforms etc. a lot to implement. Who is going to end up paying for that? The customer.
- this helps explain why in a lot of cases, post-RDR fees are actually higher than pre-RDR fees. Customers are better off from a clarity perspective, but worse off from a cost perspective (at least in the short term.)
- for the next 3 years, there will be a 2-speed system, with 'dirty' and 'clean' share classes offered side by side. Some providers will use 'clean', others 'dirty' (in many cases, 'clean' is actually more expensive than 'dirty'.) Additionally, there are different 'clean' and 'dirty' share classes of the same fund available (different providers will have different share classes.) This will make it quite difficult to compare providers in the next few years (hopefully things will get clearer after that.)

So RDR/RDR2 are great for clarity and will hopefully clear things up over the medium to long term, but that doesn't come for free.

JohnRo

donniej wrote: »

in many cases, 'clean' is actually more expensive than 'dirty'.

Are you sure?

I haven't looked extensively but several of the newer clean funds I've seen available through Charles Stanley look to have significantly cheaper OCFs than the old version TERs, where an old 1.5% AMC and 1.73% TER, I now see as 0.75% AMC and 0.83% OCF (as one example).

I am adding on the explicit platform charge when comparing new and old of course.

jimjames

JohnRo wrote: »

Are you sure?

I haven't looked extensively but several of the newer clean funds I've seen available through Charles Stanley look to have significantly cheaper OCFs than the old version TERs, where an old 1.5% AMC and 1.73% TER, I now see as 0.75% AMC and 0.83% OCF (as one example).

I am adding on the explicit platform charge when comparing new and old of course.

It certainly seems to be the case for some platforms in the interim period when both are available.

I seem to recall that HSBC was a prime example when the dirty class works out cheaper than the clean plus platform fee.