Apr 262013
 

The UK Financial Conduct Authority (FCA) – the new, allegedly improved successor to the FSA – has published the long-awaited “platform paper” setting out new rules on rebates of fund charges from fund managers to investment platforms.

This follows the Retail Distribution Review rules that came into effect at the beginning of the year, which banned financial advisers from receiving ongoing payments made by fund managers (a practice known as trail commission). The FCA will now bring in something similar for investment platforms, which are the intermediaries where the investor or adviser can access funds from many different fund firms in a single place.

These rules will radically alter the way that UK platforms and fund supermarkets charge for their services, since most currently rely on these rebates as some or all of their charges. In future, they will need to charge investors directly for their services.

For more background on how rebates and charges currently work, see this earlier article on RDR and unbundled pricing. Below is a quick summary of the FCA’s new rules and what they may mean for investors. Continue reading »

Jan 152013
 

Anybody who follows the UK financial services services market will be well aware that the Retail Distribution Review (RDR) is set to shake up the financial advice model and the pricing of many investment services. But the UK isn’t alone in this – while RDR is the first major review to come into effect, a number of other countries have been looking at similar measures.

The FT has a recent piece on the pending commission ban in the Netherlands – it’s probably paywalled for most readers, but the first couple of lines give the gist:

Dutch banks are putting pressure on asset managers to review their fund ranges in light of a self-imposed ban on inducements that will debut in January 2014.

Managers say they must create share classes that have commission payments stripped out if they want to maintain their lucrative business ties with large distributors such as ABN Amro, Rabobank and ING.

It’s interesting to see that the Dutch banks (in the Netherlands, as in most continental European markets, banks are the main fund distribution channel) are being fairly proactive about this. That contrasts with the UK experience, where many parts of the industry have left things as late as possible: Some kind of ban on trail commission to discount brokers and platforms seems almost certain within a year and yet very few firms have introduced unbundled direct-to-consumer pricing.   Continue reading »

Jan 102013
 

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. Continue reading »

Dec 192012
 

Slight delay on updating this due to other commitments, but Saxo announced new fees for its UK Modern Wealth Management service, all of which seem to be in the client’s favour. The main changes are:

  • The waiver of commission on currency conversion for international trades has been made permanent. Any FX mark-up near 0% is rare, so this makes it extremely competitive, with the only downside being that the MWM platform only has a limited range of international markets (the new rates do not apply to Saxo Trader). In particular, it’s good for anyone who wants to hold overseas stocks in an ISA, since Saxo’s new rates make it one of the cheapest ISAs for foreign stocks around.
  • The annual fee of £35 has been removed for regular investment accounts and only applies to ISAs.
  • The fund supermarket has become more competitive – it’s now on an RDR compliant basis and will now return all trail and platform commission to investors. Saxo will charge an annual custody fee of 0.5% on fund holdings, although this is being waived until January 2014. It’s hard to know how competitive 0.5% will look in a year’s time, since most of the supermarkets have not yet announced their post-RDR pricing, but I’d guess it will be mid-tier – other firms such as Cavendish will probably be cheaper. Still, Saxo is for now a much more serious contender as a fund supermarket than it was, so I’ve added it to the fund supermarket table for the time being.

Overally, good to see a firm lowering costs and a contrast to TD Direct Investing’s changes the other day.

Dec 122012
 

Charles Stanley‘s Fastrade service – notable for being one of the cheapest ways to get CREST Personal Member Account – is going to be rebranded as Charles Stanley Direct in the new year. The firm is promising that this isn’t just cosmetic and the new service will be improved; less encouragingly, it will also be raising some fees later in the year.

While the new fees haven’t yet been posted on the site, they have been emailed to a contributor on a Motley Fool UK discussion, from where I’ve copy and pasted them below: Continue reading »

Nov 132012
 

The FSA’s Retail Distribution Review (RDR) is set to shake up investment costs in the UK enormously over the next year or so. With effect from January 2013, financial advisers will no longer be able to receive trail commission – ongoing payments from fund groups – on new investments.

More importantly for DIY investors, the FSA is then likely to ban fund platforms for receiving trail commission with effect from January 2014. This means that the fees currently charged by many execution-only firms will have to change drastically.

Once that happens, many of the details in this site’s UK fund supermarket comparison table will change significantly. Unfortunately, exactly what fund supermarket pricing will look like once RDR is complete isn’t clear, making it hard to choose a new provider at the moment.

However, many of the major fund platforms have now announced their “unbundled” charging schemes – unbundled meaning that they must transparently and explicitly charge the investor for their services, rather than getting paid a platform fee in the background out of trail commission. And this is beginning to give us some idea of what fees may look like in a year or so. Continue reading »

Oct 212012
 

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. Continue reading »

Jul 282012
 

There have been a couple of updates to broker details on the site. In the UK discount stock brokers table, I have added a new service from Clubfinance, previously known as a fund supermarket and the cheapest way for self-directed investors to access the Skandia platform.

This is quite an unconventional service in terms of fees. It charges an account fee of 0.35% per year, with a minimum of £25 per quarter, but online trades in UK shares are priced at just £0.5/trade. Quite a few UK brokers are likely to adjust their fee structure in the run-up to RDR and the platform review, so we can expect to see some others experimenting with unusual arrangements like this.

In the international dealing area, Saxo Bank has added the Prague Stock Exchange for cash equity trading. It’s always encouraging to see a major broker adding another awkward-to-access market, but in practice the significance of this one is limited – there are just  15 stocks listed on the Prague exchange and many of them are cross-listed in Vienna.

The Czech Republic also has an over-the-counter market, RM-SYSTEM Czech Stock Exchange, but that isn’t part of Saxo’s new service. Foreign investors interested in that could look to Fio Banka, which owns RM-SYSTEM and offers an online trading service.

Jul 112012
 

There haven’t been many recent updates to the site due to a combination of other commitments and few major changes that I’m aware of among international stock brokers. However, we have seen a couple of UK stock brokers change their fees and this is likely to become more common in the run-up to the Retail Distribution Review and the ongoing Platform Review.

In particular, we are likely to see more providers introduce explicit account maintenance charges for both fund and share accounts, since they will no longer receive trail commission rebates from funds. The advantages and disadvantages of this change can be argued – certainly the improved transparency on exactly what clients are paying seems good – but it will probably mean a net increase in costs for smaller and less active accounts, which have traditionally been subsidised by the fees received on larger and more active ones. Continue reading »