The Retail Distribution Review
On 31 December 2012, the Financial Services Authority (now the Financial Conduct Authority) changed the rules about how financial advisers describe their services and the way consumers pay for them. These changes are commonly known as the 'Retail Distribution Review' (RDR). You may already know about this if you have had dealings with a financial adviser recently.
Following on from these changes, the regulator has made further amendments to these rules, and as of 6 April 2014, these changes will impact the non-advisory market and may affect you if you are a customer of Fair Investment Company.
As these changes will now effect both advised and non-advised transactions by investors, it's important that you understand these changes and how it may affect you.
What the new rules mean
The new rules are designed to make sure it's clear to you what charges you pay, and to whom. Historically, your charges have all been bundled into one Annual Management Charge, per fund, and behind the scenes split between your Fund Provider (e.g. Invesco Perpetual), your Intermediary (e.g. Fair Investment Company) and your Platform (e.g. Cofunds). Going forward, these charges will need to be applied separately and work is under way to ensure this is done as smoothly and simply as possible.
New Share Classes
From 2014, the familiar old style (commission-included) share class that traditionally had an average 1.5% annual management charge (AMC) to factor in all fees, will no longer be available to new investments on a platform. The Retail Distribution Review has brought with it a new share class (commission-excluded), or sometimes known as 'clean' with an equivalent average AMC charge of 0.75%. This may sound cheaper, but these fund charges do not include fees from Cofunds or Fair Investment Company. It is important to point out that these industry changes were not brought about to make things cheaper, but to make things fairer and more transparent.
You can learn more on this topic by reading 'Understanding Share Classes'.
Investments purchased Pre 2014
So, whilst new investments from 2014 will have to be purchased into the new 'commission-excluded' share class, existing funds that are left ‘undisturbed’ can remain in the old ‘commission-included’ share class. Eventually, all funds on platform will need to be converted to the commission-excluded share class, but to assist the industry in managing this process, the FCA have allowed until April 2016, for this to be done.
You can learn more on this topic by reading 'Existing Assets and Disturbance Explained'.
Whilst this is a new world for all of us and change can be difficult to take on board, we feel these changes are for the better, and you, the investor will benefit from these changes. The transparency should mean that you know exactly what charges are levied on your investments and who receives payments. Most providers have introduced new share class classes with a reduced annual management charge as they will no longer need to factor in intermediary (Fair Investment Company) fees or fund platform (Cofunds) administration costs.
What it will mean, is that Fair Investment Company and Cofunds will need to take their fees in a different way
You can learn more on these topics by reading 'Understanding Fair Investment Company Fees' and 'Understanding Cofunds Fees'.