The Financial Services Authority (FSA) has been criticised for plenty of things during their tenure regulating retail financial services in the UK.
As they prepare to morph into the Financial Conduct Authority (FCA) at the start of next month, it is good to see them doing something broadly positive for investors.
Investment Week journalist Nick Paler is reporting today that the FSA plans to ban rebates on legacy business which are paid by fund groups to platforms from 2016.
What this means in practice is that self-directed investors will finally understand what they are paying for the service.
As things stand, investors see the total cost of investing on an execution-only platform.
What they don’t always see, at least not clearly, is the breakdown of these costs. What are they paying for fund management and what are they paying for platform administration services?
The picture is muddied further by the existence of rebate deals between fund managers and platforms.
From an annual management charge of 1.5%, typically 0.5% is paid to the adviser, 0.25% to the platform and 0.75% to the fund manager.
Where the platform is the ‘adviser’, even where they are not providing advice, this means 0.75% of the annual management charge is paid to them. Further rebates from the remaining 0.75% are then negotiated based on the volume of funds sold or how they are promoted to investors.
Because it is never really clear what this ‘take’ looks like, investors find it harder to shop around and there is less competitive pressure in the market than there might otherwise be.
Here at Informed Choice, we like transparency.
The development of IC Direct, our new investment platform for self-directed investors which we are launching on 27th March, has been based around the simple concept that transparency results in fairness.
In practical terms, this means we will show investors using IC Direct precisely what they are paying for fund management and what they are paying for the platform. Our simple pricing structure will be announced within the next couple of weeks.
This is the same approach we have followed with our advised clients at Informed Choice since we adopted our current pricing structure in 2004; a fee for advice, a fee for implementation and a fee for reviews, all expressed clearly and agreed before any services are provided.
We understand why legacy platform providers will need until 2016 to get their systems and propositions in order to meet these new FSA rules, once they are formally announced. It takes time to turn around a supertanker.
In the meantime, investors will at least have access to transparent pricing structures from new entrants to the self-directed investor market, including IC Direct.
Photo credit: Flickr/Nico Kaiser
