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RDR Will it Work?
John Gallagher
Posted: 08 January 2013 13:05:54(UTC)
#1

Joined: 08/01/2013(UTC)
Posts: 1

So RDR was designed to allow IFA's to be paid directly by investors. This is a joke.

Fund managers will not rebate commissions unless you have an advisor, they will not make unbundled (no trailing commission) share classes available to independent investors and its no change, continue as usual for IFA's.

Where is the logic of providing rebates to only those investors with an IFA, if they rebated independent investors that would make a level playing field for competition.

I am fighting a loosing battle to get my IFA rebate all commissions and move to a fixed fee/variable fee that is not linked to the total value of my investments.

As far as I am concerned if the fund managers dictate the terms of when and how investors money is rebated what chance do we have of truly negotiating advisors fees and services?
Asim Macci
Posted: 09 January 2013 05:01:02(UTC)
#2

Joined: 12/11/2012(UTC)
Posts: 1

RDR is supposed to "revolutionize" the financial services industry, but not all revolutions are successful in the long-run.

The fee vs commission ruling will help weed out the commission hungry "car salesmen" from the industry in favor of those who respect and do a good job for their clients regardless of their pay.

However introducing fee only investment business effectively makes full independent advice unaffordable for those who need it the most. HNW individuals should easily be able to save for retirement as there are more tax breaks for people in the higher tax brackets. But those who are in the lower bracket would be out-priced from IFA advice as any gains they could make would be lost through fees.

Will RDR work? To an extent, yes but in the long run no! It wouldn's surprise me that in 2 years time we hear of substantial modifications to RDR, or new Government based savings & retirement vehicles; i.e. a combination of ISAs & Pensions.
P L
Posted: 09 January 2013 10:10:21(UTC)
#3

Joined: 10/08/2008(UTC)
Posts: 266

Thanks: 10 times
Was thanked: 226 time(s) in 102 post(s)
The 'clean' class of units are I believe simply the cost of running the fund. In which case dealing with investors is then an added cost. From a fund management point of view it makes more sense and is probably more efficient for everyone for it to be conducted by a dedicate 3rd party platform that can use economies of scale to keep the overall cost lower.

In theory the platform is then free to offer either a 'commission free' unit which includes platform cost or a 'clean' unit + platform charge. This is essentially what cavnedish online do. They take the 'retail' unit and rebate the advise fee (0.5%) leaving what is in essensially now a a 'commission free' unit. They then split the inbuilt platform cost between themselves and fundsnetwork.

The advantage of holding a 'clean' units and paying all the charges direct is the growth of the fund is not impacted. I would therefore ecpect to see 'clean' units with external service charges being offered as an alternative.

The real bugbear in all this is the current charging scheme in which they charge as a % of the fund value. Whilst this might have been be valid in the situation in which initial advise is being charged over a long period rather than all upfront (to cover the lost opportunity cost of effectively loaning the investor some of the cost of advise), it makes no sense from an execution only standpoint. £1 in digital money/value is no more expensive to hold/handle than £1M. If I invest 10K the platform/broker charge for cavendish is 0.25% or £25. Over 10 years it becomes £250 even if it doesn't growth.. Does it really cost that much to simply invest and manage my digital wealth for ten years. Had I used the same 10K to buy shares or an IT/ETF throuigh X-O.co.uk it would have cost me £10 (incl stamp duty). It could be argued that a small % charge might be acceptable where free dealing is being offer as it effectively caps my cost and avoids having to worry about how many deals I might do.

In itself RDR will not immdeiately change the overall costs of funds. But it should mean platforms start offering IT's and ETF as these are generally cheaper as far as fund costs are concerned which means the total cost to the investor is cheaper and the broker still gets to keep up to 0.75% slice of the retail AMC. Hopefully as shown in the paragraph above investors will then question the % based charging for funds and move to lower cost providers which will force brokers/platforms into more fixed pricing.

1 user thanked P L for this post.
Karl Smith on 09/01/2013(UTC)
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