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| + | <div id="js-article-text" class="article-text float-l " ><h1>Time called on 'free investing', as FSA moves to ban platform commission but it will mean more upfront fees for investors</h1><p> By and </p><p><span class="article-timestamp"><strong>PUBLISHED:</strong>13:28 GMT, 27 June 2012</span> <span class="article-timestamp"><strong>UPDATED:</strong>13:41 GMT, 27 June 2012</span></p><p><br></p><p><font style="font-size: 1.2em;">Savers face the end of 'free investing' on fund supermarkets,</font><font style="font-size: 1.2em;"> as part of a shake-up that could see them start paying upfront charges but save money in the long-term.</font><br></p><p><font style="font-size: 1.2em;">Watchdog the Financial Services Authority wants to ban all payments from product providers to investing platforms.</font></p><p><font style="font-size: 1.2em;">This would call an end to the practice in which commission from fund managers pays for savers to use dealing services for free. <br></font></p><p><font style="font-size: 1.2em;">However, while investors may believe they are getting a good deal by paying no upfront charges, the kickbacks eat into their returns over the years, potentially costing them hundreds or thousands of pounds in future growth.</font></p><p><font style="font-size: 1.2em;">Banning payments is expected to lead to more investing platforms charging monthly or annual administration charges, but the FSA says that it is dangerous to make investing seem free to the untrained eye when it actually carries a cost.</font><br></p><p><font style="font-size: 1.2em;">The change is expected to add around ?80 upfront per year to the cost of investing in an Isa, but commission takes about ?75 out of every ?10,hollister outlet,000 invested and eats into future returns.</font><br></p><p><font style="font-size: 1.2em;">Sheila Nicoll, director of conduct policy at the FSA, said: 'Investors are increasingly using platforms as a convenient ‘one stop shop' for their investments, but at the moment many investors have no idea what they are paying for this service,ralph lauren uk, while some believe it is free.</font><br></p><p><font style="font-size: 1.2em;">'This needs to change. Today we are proposing changes that give investors and their advisers more control and mean that they know exactly what they are paying for a platform's service.'</font></p><p></p><p><font style="font-size: 1.2em;">The FSA said that it plans to publish its finalised rules before the end of 2012, allowing platforms over a year to implement the necessary changes to their business models before the rules come into effect on 31 December 2013.</font><br></p><p><font style="font-size: 1.2em;">Fund managers typically pay an annual fee, known as trail commission, of 0.75 per cent to whoever sold the fund. Originally this was designed to reward financial advisers for selling their products, but in the case of platforms - where this is no advice given - the money instead goes to them.</font><br></p><p><font style="font-size: 1.2em;">This commission is, in effect, taken from your investment. Of this, 0.25 per cent goes to the platform on which the funds sit and 0.50 per cent a year,hollister clothing, the advice fee, goes to the introducer - which in this case is also them.</font></p><p><font style="font-size: 1.2em;">The commission comes out of the annual management charge investors pay, typically levied at 1.5 per cent.</font></p><p><font style="font-size: 1.2em;">Some fund supermarkets and Isa investing platforms already return the payments they get, known as trail commission, to investors, with names such as Alliance Trust Savings and Cavendish Online already refunding all trail commission.</font></p><p><font style="font-size: 1.2em;">Direct investing giant Hargreaves Lansdown gives back some commission,hollister outlet uk, up to 0.5 per cent, while small rival rplan refunds 50 per cent of commission it gets and caps the remainder that it takes at ?15 per month.<br></font></p><p><font style="font-size: 1.2em;">Some investing platforms have also changed their charges recently and begun refunding some commission. <br></font></p><p><font style="font-size: 1.2em;">BestInvest now refunds 0.5 per cent commission to all customers, while Interactive Investor switched from no upfront fees to an ?80-a-year charge at the beginning of June and is now refunding commission.</font></p><h2><br></h2><h2><font style="font-size: 1.2em;">What next for Hargreaves Lansdown and rivals</font>?</h2><p><font style="font-size: 1.2em;">Investing powerhouse <span style="font-weight: bold;">Hargreaves Lansdown</span> has pioneered fee-free fund saving on its Vantage platform and built up a highly successful business by offering no administration or fund dealing charges.</font><br></p><p><font style="font-size: 1.2em;">It already offers investors a loyalty bonus that refunds some of their trail commission - up to 0.5 per cent - with the remainder contributing to the lucrative business' profits.</font></p><p><font style="font-size: 1.2em;">when the FSA indicated it wanted to bring platforms into a commission ban, but has remained broadly flat today, up 0.35 per cent to 507.75p at 1.20pm.</font><font style="font-size: 1.2em;"></font></p><p><font style="font-size: 1.2em;">In an announcement to the stock market this morning Hargreaves said: 'The FSA's position does not come as a surprise, and our planning has been focussed on a "no payments to Platforms" outcome.</font><br></p><p><font style="font-size: 1.2em;">'We do not currently believe any potential changes to our business model to respond to the FSA's RDR proposals will materially affect our service levels or profitability given our strong client base, high asset retention and exceptional service levels. <br></font></p><p><font style="font-size: 1.2em;">'We have already developed alternative revenue and charging models that would be compliant with the FSA's proposals,hollister sale.'</font><br></p><p><font style="font-size: 1.2em;">While Hargreaves has no buying and selling, set-up, or annual fees for actively managed fund ISAs, it does carry charges for share and investment trust dealing and also introduced a ,ralph lauren outlet?2 per month charge for holding non-commission-paying tracker funds last summer. <br></font></p><p><font style="font-size: 1.2em;">The firm already charges Isa investors who hold investment trusts, shares or ETFs 0.5 per cent of their holding per year, up to a maximum of ,hollister outlet?45.</font><br></p><p><font style="font-size: 1.2em;">The small army of 400,000 savers who have been using Hargreaves Lansdown's Vantage service to combine no-fee fund investing with the rebate of some commission will be waiting eagerly to see whether it announces an annual charge following the FSA announcement.</font><br></p><p><font style="font-size: 1.2em;">Meanwhile, <span style="font-weight: bold;">Alliance Trust</span> will increase its Isa fund fees from ?25 a year to ,hollister outlet?40 a year from August. Its existing online customers will see their charges frozen at ?25 for a year and a half.</font><br></p><p><font style="font-size: 1.2em;">Garry Mcluckie, of Alliance Trust, which already charges upfront and refunds commission, says: ‘Some companies claim to offer free investing but in reality you are paying through the backdoor.</font><br></p><p><font style="font-size: 1.2em;">‘Things have to change because charging a percentage of a fund value is a tax on wealth - the more money you hold, the more expensive it gets.’ </font><br></p><p><font style="font-size: 1.2em;">Billy Mackay,cheap ralph lauren, of rival <span style="font-weight: bold;">AJ Bell</span>, says fund managers may cut their annual charges - typically ?1.50 on every ?100 invested - as a result of the ban.</font><br><font style="font-size: 1.2em;">This would leave investors no worse off, but sceptics call it wishful thinking.</font><br></p><p><font style="font-size: 1.2em;">Adrian Lowcock, of <span style="font-weight: bold;">Bestinvest</span>, says there may be a price war as all fund supermarkets are forced to use similar charging methods.</font></p><h2><font style="font-size: 1.2em;">But it's good news for investment trusts</font></h2><p> <font style="font-size: 1.2em;">The FSA's plans would also stop fund managers' sweeteners getting them ‘greater prominence’ on fund supermarket websites.</font></p><p><font style="font-size: 1.2em;">This has long been a bugbear of the investment trust industry, which typically offers investors a lower cost alternative to funds due to lower management fees.</font></p><p><font style="font-size: 1.2em;">This is because investment trusts do not pay commission,cheap ralph lauren, but the flipside is that advisers and platforms have given them less prominence.</font></p><p><font style="font-size: 1.2em;">The hope is that a level playing field will bring more platforms offering trusts and lower dealing charges.<br></font></p><p><font style="font-size: 1.2em;">Ian Sayers, Director General, Association of Investment Companies said: 'The FSA’s intention will create a win-win for consumers. Greater transparency will empower consumers and reduce the risk that competition could be distorted by providers buying access to distribution. <br></font></p><p><font style="font-size: 1.2em;">'Whether consumers chose to buy through advisers or directly, they will benefit from a clean pricing model where they see how much they pay for advice, the fund and the platform they use. <br></font></p><p><font style="font-size:1.2em;">'This model will encourage platforms to hold the broadest range of investment products, including investment companies which have not paid for access in the past.'<br><br></font></p><p><font style="font-size: 1.2em;"><br></font></p> </div> | ||
