Barclays and the spirit of RDR

Citywire is reporting proposals by Barclays to counteract the FSA’s forthcoming Retail Distribution Review ban on funds paying trail commission to intermediaries, by trying to charge the fund providers “administration fees” for having their products on its platform.

Whether the FSA will permit this isn’t clear, but the idea seems to go against the initial spirit of RDR. The FSA’s professed goal is for all the costs to be transparent to the client – they should be paying explicit charges for using the platform, as a flat fee or percentage of their holdings. Not imposing these and instead charging opaque admin fees to providers is not significantly different to the current system of trail commission.

It’s hard to argue that this comes out of the provider’s own margins – that simply means that rather than management fees falling to (say) 0.75% to reflect what the fund firm currently gets, they will just fall to (say) 1% to cover the extra payment that the firm must make to the platform. It will be an implicit share of the fees rather than an explicit one, but the same outcome.

The real relevance of this story isn’t what Barclays’ charges will ultimately be. Instead, it’s that it demonstrates how impossible it is to know yet what the outcome of RDR will be and how firms will change their fee structure in response.

Quite a number of investors seem to be moving providers at the moment in response to new fees at Alliance Trust, Interactive Investor, Selftrade and others, which may make sense given that firms ultimately – after much arm-twisting – gave existing clients a brief window in which to transfer without charge. But with the post-RDR situation unclear, there is a danger of jumping to a new provider just before it too announces new fees. For those who can wait until after the deadline to make decisions on a new account, it may make sense to delay choosing a new broker for now.

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