RDR is resulting in lower charges and more clarity

Tony Hazell

Tony Hazell

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.

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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.

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?