How can slashing fees be unfair to investors?

Jan 12, 2010, 11:14

Jody Clarke

Posted byJody Clarke

Share with
friends:

Comments (2)

Talk about ruffled feathers. For one month only, Fidelity International is offering 0% initial commission on 30 of its most popular funds. Independent financial advisors (IFAs) aren't happy at all. Why not? Because the January sales promotion is only open to execution-only clients, not those who buy the funds through IFAs.

"Fidelity is effectively encouraging people not to take advice before making important investment decisions", said Adrian Lowcock, senior investment adviser at Bestinvest. "We do not consider this as fully in line with the spirit of 'Treating Customers Fairly'."

But in what world is it unfair to charge customers less? Fees have an enormous impact on investment returns, as we've pointed out before. So any development that allows investors to limit fees should be welcomed.

And while Peter Hicks, head of UK retail sales at Fidelity, says this is not the start of "an emerging trend", it does look like another nail in the coffin of commission-based financial advice. And really, IFAs in general should be pleased about that. With the FSA banning commission fees in the next few years, IFAs will have to look at alternative business models, and the sooner they do so, the better. Fee-only advice is one option.

But the really good news is that if fund management firms cotton on to the idea that they can attract more business by pitching to customers directly and offering lower fees, then that should help to focus both consumers' and fund groups' minds on costs. And hopefully, it should drive down annual management fees too. After all, if fund managers can no longer pull in extra business by paying commission to IFAs, then why encourage consumers to go through a middleman at all?

Comments (2)

Published in Blog More articles by Jody Clarke

Share with
friends:

Related articles

Comments

Leave a comment

  • 1. Adrian Lowcock

    (12 January 2010, 02:33PM)  Complain about this comment

    Jody,

    Thank you for your comments. Far from being concerned about Fidelity’s sales promotion, Bestinvest welcomes all efforts to reduce the cost of investing. In fact, Bestinvest never takes initial commission on any funds and uses its bargaining power as one of the largest UK investment advisers to eliminate any initial charges set by many fund managers. Fidelity is one of the few fund managers that continues to levy an initial charge for some of its funds (this isn’t paid to an adviser and goes into Fidelity’s coffers). We don’t think it’s fair that Fidelity has waived its initial charge for investors who come to it directly but continues to impose this charge on clients who prefer to invest through an adviser – even when the adviser takes no initial commission.

  • 2. Bapodra Invesments

    (12 January 2010, 05:44PM)  Complain about this comment

    Fidelity's policy only favours new investors. What about those people who invest in some of those 30 different funds and have paid or are paying charges. They get treated badly by having to watch new money/customers come in for the month of January and pay 0%. This may shoot Fidelity in the foot if exisiting customers decide to take their money from Fidelity elsewhere.

Leave a comment

This will be the name displayed with your comment.

This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.

Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.

captcha To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.

By leaving a comment you accept our terms and conditions.


FREE - MoneyWeek's daily investment emailJohn Stepek

Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.

>