Question
I'm thinking of moving from my existing fund supermarket due to high charges (as discovered on your excellent comparefundplatforms web site) but I would like clarification on the impact of the RDR on trail commissions.
Most fund supermarket rebates appear to come from refunds of part of the trail commission, but if these are being phased out, are the results of your comparison service still applicable for both new and existing investments?
I had understood that trail commission could only now be paid on existing holdings. What happens if I switch fund supermarket and/or the actual investments (Unit Trusts OEICS etc) will I still benefit from refunds of trail commission if no new money is involved?
I understand that all trail commissions could be banned from next year (2014) Could this mean that the fund supermarkets will have to start charging for their services instead of paying rebates? or move everyone to "clean" versions of funds?
I'm concerned that if I switch fund supermarkets now and incur exit charges, the market could change considerably within a year with the end of trail commissions and today's "best buy" supermarket could be tomorrow's dog and cost me switching charges yet again.
Am I correct in my understanding of the impact of the RDR?Answer
You're right to be concerned as a lot could change over the next year. A simple commission ban timeline is as follows:
31 December 2012 - commission banned for new investments where financial advice given.
6 April 2014 - commission will be banned for new investments where no advice given (i.e. execution-only).
6 April 2016 - commission will be banned for existing (pre 6 April 2014) investments where no advice given, although switching funds meanwhile will immediately trigger the ban.
So all those fund platforms/supermarkets/discount brokers who currently receive trail commission will have to 'come clean' by next April and charge explicit fees while using 'clean' funds without commission or platform fees built in.
A few platforms already offer 'clean' charging, namely Alliance Trust Savings, Charles Stanley Direct and TD Direct Investing, which gives a reasonable idea of what others may end up looking like - although there's no guarantee these three won't change their charges (for better or worse) in future.
If you face significant exit charges and the platform you wish to move to has yet to offer clean charging then yes, it could make sense to wait until more platforms have announced their new charging structure. Although in general if a platform is uncompetitive now I doubt much will change under the new regime - they're unlikely to want to reduce their profit margin by much, if anything.
What might confuse things in a 'clean' world is if some platforms can negotiate cheaper 'clean' funds than others, as you'll need to look at specific funds as well as platform charges much like at present.
My fund platform comparison website will continue to show costs for new investments. At the moment this obviously includes most existing investments too. As you point out we could go through a period where platforms offer different prices for new versus existing investments. It might prove too complex to build this into the comparison, but rest assured I'll certainly be analysing and writing about the new charges when introduced by each platform - with a view on whether you're generally better off under old or new.
I'm thinking of moving from my existing fund supermarket due to high charges (as discovered on your excellent comparefundplatforms web site) but I would like clarification on the impact of the RDR on trail commissions.
Most fund supermarket rebates appear to come from refunds of part of the trail commission, but if these are being phased out, are the results of your comparison service still applicable for both new and existing investments?
I had understood that trail commission could only now be paid on existing holdings. What happens if I switch fund supermarket and/or the actual investments (Unit Trusts OEICS etc) will I still benefit from refunds of trail commission if no new money is involved?
I understand that all trail commissions could be banned from next year (2014) Could this mean that the fund supermarkets will have to start charging for their services instead of paying rebates? or move everyone to "clean" versions of funds?
I'm concerned that if I switch fund supermarkets now and incur exit charges, the market could change considerably within a year with the end of trail commissions and today's "best buy" supermarket could be tomorrow's dog and cost me switching charges yet again.
Am I correct in my understanding of the impact of the RDR?Answer
You're right to be concerned as a lot could change over the next year. A simple commission ban timeline is as follows:
31 December 2012 - commission banned for new investments where financial advice given.
6 April 2014 - commission will be banned for new investments where no advice given (i.e. execution-only).
6 April 2016 - commission will be banned for existing (pre 6 April 2014) investments where no advice given, although switching funds meanwhile will immediately trigger the ban.
So all those fund platforms/supermarkets/discount brokers who currently receive trail commission will have to 'come clean' by next April and charge explicit fees while using 'clean' funds without commission or platform fees built in.
A few platforms already offer 'clean' charging, namely Alliance Trust Savings, Charles Stanley Direct and TD Direct Investing, which gives a reasonable idea of what others may end up looking like - although there's no guarantee these three won't change their charges (for better or worse) in future.
If you face significant exit charges and the platform you wish to move to has yet to offer clean charging then yes, it could make sense to wait until more platforms have announced their new charging structure. Although in general if a platform is uncompetitive now I doubt much will change under the new regime - they're unlikely to want to reduce their profit margin by much, if anything.
What might confuse things in a 'clean' world is if some platforms can negotiate cheaper 'clean' funds than others, as you'll need to look at specific funds as well as platform charges much like at present.
My fund platform comparison website will continue to show costs for new investments. At the moment this obviously includes most existing investments too. As you point out we could go through a period where platforms offer different prices for new versus existing investments. It might prove too complex to build this into the comparison, but rest assured I'll certainly be analysing and writing about the new charges when introduced by each platform - with a view on whether you're generally better off under old or new.
Read this Q and A at http://www.candidmoney.com/askjustin/868/should-i-wait-before-moving-to-a-cheaper-plaform
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