After I said about avoiding the scary headlines I want to outline a brief piece on going direct and their charges.
As I pointed out in my last article going direct is NOT FREE. In many cases the providers are taking large fees from fund houses, I have heard rumours of one direct provider receive up to 1% from fund houses. So from a client side they are happy because say the fund charge is 1.5%, the provider offers access to the fund at say 1.4% so the client feels happy.
When we break this down the fund house gets 0.4% and at the extreme end the provider gets 1%. Nothing is certain but what is certain is that direct operations don’t need to do anything until 1 January 2014.
I will cover some of the options further in this article. One possibility as highlighted in the last blog is that if they “encourage” clients to do nothing they could continue to receive these large payments as it would be in their best interest to encourage this. Whether ethically and morally they would do this is, is another matter.
We know from recent press articles that many clients invest their money in a SIPP or an ISA and do nothing so this is a possibility.
However for those who are active what are the options:
- We could see direct operations charging a percentage fee say 1%, if this was the case then clients would in real terms be no worse off and they would then have to consider whether the service they get warrants that fee
- We could see as we have seen with a few providers a quarterly fee, I will cover a serious consideration on this. For me this appears the fairest route but beware of all the additional charges which can make what appears cheap an expensive fee
On point two you as the client will need to manage your cash account a lot more actively to ensure you have sufficient money in your account to cover the fees. And remember my point about tax implications i.e. charges from an ISA will come out of the ISA allowance, and non ISA investments may be subject to CGT.
I suppose the point is that direct operations have a further year to get their ship in order, during this time they will target the lost clients and this is where the danger lies. Clients who are thinking of going direct should be asking questions about future charging, the service and possible changes before they do anything. Otherwise they could be faced with the same dilemma in twelve months’ time.
NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.