RDR update: Alliance Trust Savings and ICICI Bank UK

The temporary but large reduction in funds available for investment on the Alliance Trust Savings platform – give quite high profile coverage in the Daily Telegraph – is another example of why picking a new fund supermarket requires caution while the effects of the Retail Distribution Review are still working their way through.

I am not inclined to castigate ATS too much over this – it is reacting to RDR and the platform review far more pre-emptively than most of its peers and it’s to be commended for moving to clean pricing as quickly as possible. Perhaps the change could have been better communicated, but ATS seems to have a fairly comprehensive RDR changes page to update users on progress.

The new terms on fund charges [PDF] generally look significantly better. Obviously, you need to allow for ATS’s charges on top of the clean fees, but seeing some firms already bringing their fees down on a transparent basis should hopefully drive competition across all platforms.

However, it may take some time to get all funds across to clean pricing, which is as far as I know is not really ATS’s fault (exactly why so many fund management firms have been dragging their heels on getting their RDR policy sorted when the deadline has been known for a long time is another question). And while that’s happening, the platform may look weaker in comparison to some rivals who have not yet taken the jump.

If judged that way, ATS is unfairly penalised for going first. Any investor shopping for a new fund supermarket at the moment needs to be aware of this kind of question and how existing pricing models may change in the next year or so.

ICICI UK enters fund broker market

On a related point, there’s been a rather unexpected entrant to the fund supermarket business – the UK arm of Indian bank ICICI has set up a discount fund broker service based on the Cofunds platform.

This offering is not yet on a basis that is likely to be compliant with the platform review – ICICI is rebating all broker trail commission, but Cofunds will be applied its bundled model, which means that it typically takes a 0.25% cut. However, ICICI’s pricing looks relatively competitive: £3 per month or £25 per year for ICICI bank account holders, £4 per month or £35 per year for other users.

Assuming there are no other costs in the small print, this might work out cheaper for some portfolios than Commfreefunds and Interactive Investor, which I reckon are currently the cheapest ways to access Cofunds. Commfreefunds charges 0.19% per year, Interactive Investor charges minimum dealing fees of £20 per quarter, but gives higher rebates since it also receives and rebates a slice of Cofunds’ platform fee as well as the broker trail commission.

The ICICI service includes an ISA option and apparently a SIPP may be on the way. For those who are wondering about account safety, ICICI Bank UK is FSA-regulated (it’s been offering current and savings accounts here for several years) as of course is Cofunds, so the usual UK Financial Services Compensation Scheme conditions would apply if the worst happened.

Once again, it’s hard to know how the cost of using Cofunds will evolve as once the platform has to move to unbundled pricing for these services, so I wouldn’t rush to transfer to ICICI but it’s good to see a new entrant with relatively clean pricing coming into the market.



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