Philippa Gee: Beware dangers of low-cost RDR push
I realise it must seem with my blogs of late, that I could come across as being anti low-cost investments, but that is not the case. Please understand that I do like passive holdings and, personally, believe that they have a strong part to play when constructing an investment portfolio. I also appreciate that there are many who prefer a fully passive approach and have the research and methodology to back that up.
That is not my worry.
Instead, my concern is where advisers are using these funds for the wrong reasons.
There are some worrying signs which I see appearing, as IFAs transition their businesses to be ready for RDR. The issue is that some are switching all their clients to a purely passive approach solely because they can then add on their fee of 0.75 per cent or 1 per cent on top, without it being seen to cost the client more.
It’s not that these particular IFAs feel that the passive approach better reflects their approach to investments, or that they believe it is the most suitable form of investing for the client, but purely because it allows them to set charges without having to give further explanation. Some also see it as a way of boosting income, having moved from an active fund paying 0.5 per cent trail, to a passive fund where they can add in a 1 per cent charge.
Will this work? Well I accept that it means that the funds are unlikely to be complete howlers, which has to be a good thing. But if the intention is not the suitability of the investment, but a way to get round the fee issue, then I feel that it is destined to failure. If you are considering doing this, I urge you to rethink your strategy and if you want to charge a particular percentage fee, that is fine, just deliver the value and service to back that up. If you want clients to appreciate your work and stay with you for the long term, the passive route solely to justify fees may not be the right road for that journey.
It’s hardly TCF is it?
Philippa Gee is managing director at Philippa Gee Wealth Management.
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