Question
I have acted on your helpful information on receing trail commission on ISAs a, Units and OEICs investments. There is one problem you haven't yet dealt with: how to find out, before purchase, what, if any, the trail commission is! Neither Hargreaves Lansdown or Commshare - excellent as their websites are - offer this facility [although you can phone and ask - with all the attendant inconveniences and hazards].
Cavendish does offer [with a warning to check] a link http://www.cavendishonline.co.uk/investments/fund-discounts/ but it is grossly inaccurate. It quotes trail commission values, for example for trackers [e.g.HSBC American Index] that are actually zero.
Can you think of a way to find the values, if any, of trial commissions before purchase without phoning, waiting, once connected waiting some more, while the 'advisor' finds the value, if any?Answer
Trail commission is largely standardised across the industry at 0.5% a year on funds which levy a 1.5% or higher annual management charge. Funds with lower annual charges tend to pay 0.2% - 0.5% except for trackers, which typically pay no commission (not really viable when the total annual charge is usually 0.5% or lower).
While commission rates can vary from these norms and it's not unheard of for providers to increase commissions for favoured distributors (e.g. very large IFAs or discount brokers), in practice such variances are quite rare these days. What's more common is for distributors with their own platforms (e.g. Hargreaves Lansdown, Bestinvest) to negotiate additional fees from fund groups via their platform, which currently do not have be disclosed to investors - so impossible to know exactly how much they're making.
If you want to gauge how much trail commission specific funds generally pay I'd take a look at the Alliance Trust Savings fund list - the annual rebate column shows the full trail commission rebate. It looks like some groups pay extra platform fees too, which ATS also rebates, hence inflating the figure for some funds.
I've taken a look at the Cavendish Online fund list and a quick check of 10 funds (including trackers) showed accurate trail commission rebate figures. That's not to say there are no mistakes in their fund database, but I think you can be confident their figures are largely accurate - I certainly wouldn't call them grossly inaccurate.
All this should (in theory) get a whole lot simpler over the next year or two.
The FSA's Retail Distribution Review (RDR) will ban commissions from January 2012 on new sales via financial advisers. It will remain for execution only sales (e.g. Cavendish, HL) for the time being, but it's expected they'll fall under the same regime within a year.
This means that funds should be offered without adviser commissions and platform fees built into their charges - which is effectively the same as the 'institutional' unit classes already offered by many funds.
The net result is that a fund currently charging 1.5% a year will likely charge 0.75% instead. Investors will then have to pay explicit discount broker and platform fees directly. This is pretty much how Interactive Investor and Alliance Trust Savings are already operating, but it could prove quite a shock to customers of companies like Bestinvest and Hargreaves Lansdown where the pricing is more opaque thanks to the companies receiving undisclosed fees from the fund groups on their platforms. Customers who thought they were getting the platform service for 'free' will likely have to start paying for it directly rather than via fund charges.
I have acted on your helpful information on receing trail commission on ISAs a, Units and OEICs investments. There is one problem you haven't yet dealt with: how to find out, before purchase, what, if any, the trail commission is! Neither Hargreaves Lansdown or Commshare - excellent as their websites are - offer this facility [although you can phone and ask - with all the attendant inconveniences and hazards].
Cavendish does offer [with a warning to check] a link http://www.cavendishonline.co.uk/investments/fund-discounts/ but it is grossly inaccurate. It quotes trail commission values, for example for trackers [e.g.HSBC American Index] that are actually zero.
Can you think of a way to find the values, if any, of trial commissions before purchase without phoning, waiting, once connected waiting some more, while the 'advisor' finds the value, if any?Answer
Trail commission is largely standardised across the industry at 0.5% a year on funds which levy a 1.5% or higher annual management charge. Funds with lower annual charges tend to pay 0.2% - 0.5% except for trackers, which typically pay no commission (not really viable when the total annual charge is usually 0.5% or lower).
While commission rates can vary from these norms and it's not unheard of for providers to increase commissions for favoured distributors (e.g. very large IFAs or discount brokers), in practice such variances are quite rare these days. What's more common is for distributors with their own platforms (e.g. Hargreaves Lansdown, Bestinvest) to negotiate additional fees from fund groups via their platform, which currently do not have be disclosed to investors - so impossible to know exactly how much they're making.
If you want to gauge how much trail commission specific funds generally pay I'd take a look at the Alliance Trust Savings fund list - the annual rebate column shows the full trail commission rebate. It looks like some groups pay extra platform fees too, which ATS also rebates, hence inflating the figure for some funds.
I've taken a look at the Cavendish Online fund list and a quick check of 10 funds (including trackers) showed accurate trail commission rebate figures. That's not to say there are no mistakes in their fund database, but I think you can be confident their figures are largely accurate - I certainly wouldn't call them grossly inaccurate.
All this should (in theory) get a whole lot simpler over the next year or two.
The FSA's Retail Distribution Review (RDR) will ban commissions from January 2012 on new sales via financial advisers. It will remain for execution only sales (e.g. Cavendish, HL) for the time being, but it's expected they'll fall under the same regime within a year.
This means that funds should be offered without adviser commissions and platform fees built into their charges - which is effectively the same as the 'institutional' unit classes already offered by many funds.
The net result is that a fund currently charging 1.5% a year will likely charge 0.75% instead. Investors will then have to pay explicit discount broker and platform fees directly. This is pretty much how Interactive Investor and Alliance Trust Savings are already operating, but it could prove quite a shock to customers of companies like Bestinvest and Hargreaves Lansdown where the pricing is more opaque thanks to the companies receiving undisclosed fees from the fund groups on their platforms. Customers who thought they were getting the platform service for 'free' will likely have to start paying for it directly rather than via fund charges.
Read this Q and A at http://www.candidmoney.com/questions/question697.aspx
No comments:
Post a Comment