OpinionMar 12 2014

RDR is resulting in lower charges and more clarity

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For the past couple of years, whenever I have suggested that the RDR would cut costs for investors, I have received emails and phone calls poo-pooing the idea.

Clean funds with cost of investing separated from the cost of advice or dealing would, some argued, create more costs for investors.

More recently some normally friendly IFAs have at times been rather abrasive.

But then so would I be if I could feel my profit margins being squeezed.

For the fact of the matter is that the RDR has sparked something of a price war between the leading platforms.

Now charges have been separated out, a self-investor can see what he is paying for and make an informed choice.

An IFA can make a similar choice on behalf of clients and will have to justify his choice of platform and his fees.

Take the case of the popular Rathbone Income fund. Previously an investor would have been charged 1.5 per cent a year for holding this with most platforms.

Some would have offered a commission rebate reducing the cost to around 1.25 per cent a year.

Some would have offered a commission rebate reducing the cost to around 1.25 per cent a year.

Now look what the RDR has done. Hargreaves Lansdown is offering the fund with an annual management charge of 0.49 per cent rather than the standard AMC of 0.75 per cent on the clean fund.

Add this to the 0.45 per cent platform fee investors with less than £250,000 are charged by Hargreaves and the total fee is 0.94 per cent.

These discounts have forced Fidelity Personal Investing to price match on the total cost of investing until the end of this year.

And if investors want confirmation of what bad value bundling offers, then look at the cost of holding the old version of Rathbone Income with Hargreaves: 1.2 per cent after the commission rebate.

No doubt I will be accused of being selective here. But that is precisely what investors must be if they are to get the best value when choosing a platform.

Now charges have been separated out, a self-investor can see what he is paying for and make an informed choice

Either way, direct investors are paying lower charges.

Those who want advice are paying for this advice, which is, again, as it should be.

Most importantly consumers have a great deal more choice and power than they did previously. And that is how functioning markets work.

‘Adviser’ should mean something

The Financial Conduct Authority’s latest missive on sales incentives highlights one of the most dangerous areas for both the consumer and the adviser: face-to-face conversations.

Who said what to whom is almost impossible to verify and later investigation must necessarily rely on the balance of probabilities – and, sometimes unreliable, contemporaneous notes.

Poor behaviour in face-to-face conversations undoubtedly still goes on. But how do you prove it without recording every conversation?

The FCA clearly has concerns that some smaller IFAs, in particular, are either unaware of the rules on incentives or feel they do not apply to them.

It is legitimate to ask whether someone with 100 per cent variable pay based on sales is in fact an adviser at all. If no sales means no pay then you are a salesmen. Full stop. End of discussion.

This is an area that will doubtless come under closer scrutiny. Having purged the banks the FCA is intent on finishing the job. All IFAs who are justifiably proud to have the word ‘adviser’ in their title should welcome this guidance.

Aim stocks are not mainstream

We sit at the height of what used to be the Isa season and recommendations are spewing forth from investment advisers.

One area I still remain highly concerned about is the way Aim investing is being marketed at mainstream investors. Such stocks are no solution for the average Isa investor.

Don’t agree? Then consider this. Among the firms being touted last August, when Aims were allowed into Isas, were pharmaceutical sector service company Cello Group, mobile banking firm Monitise and property company Christie Group.

All three have delivered decent returns with Monitise doubling its value.

But at the other end of the scale investors might equally well have opted for the much-touted Fastjet – down 80 per cent – or Amur Minerals – down 39 per cent.

It is these latter cases that must be highlighted to the mainstream investor – but I wonder how many “experts” will only highlight the former?

Tony Hazell writes for the Daily Mail’s Money Mail Section