RDR effect sees fund fees fall by a fifth

RDR effect sees fund fees fall by a fifth

Investors are paying over a fifth less in annual fund fees as a result of the Retail Distribution Review, according to analysis by the online investment platform Rplan.

The analysis found that investors are paying less charges, following on from trail commission being discontinued on all retail funds in the UK on 6 April, but are also increasingly favouring investments into passive funds.

Rplan said that the average annual fee for the top 100 funds purchased on the Rplan platform fell from 1.32% around the time that RDR was introduced, to 1.03% now. This represents a drop of 22%.

The analysis on fund fees on the platform in the 12 months to 10 March 2013 versus the 12 months to 10 March 2016 showed that the average fee of the top 50 has fallen from 1.24% to 1.03% (17%) and average fees from the top 10 best selling funds has fallen from 1.18% to 1.10% ( 7%).

Although the analysis illustrates the positive impact that RDR has had on fees, Rplan said that changing investment patterns have also been a factor. In the first quarter of 2013, just 10% of the top 100 investments on Rplan were in passive funds but this figure has risen to 26% in 2016.

Greater transparency

Nick Curry, director at Rplan, pointed that, “The greater transparency brought about by the RDR has certainly been a factor in fees being more competitive.” But Curry remains concerned about platform fees clarity in general.

“Investors still need to be aware of advisers or platforms charges,” he said. “Platforms do target investors with different amounts to invest through their charging structure, and this does go some way towards explain varying levels of charges, but there is no doubt that lack of clarity also plays a role.

“We believe that charges should be expressed in both percentage terms and pounds and pence – that way investors can see exactly what the impact is of the fees they are paying.”

40% are better off

Rplan discontinued trail commission charged on its customers funds seven months ahead of the Financial Conduct Authority’s  ‘sunset clause’ April 6 deadline. At that time around half (48%) of Rplan’s clients were affected by the switch and 83% of these – or 40% of all the platform’s investors – are now better off as a result of the change, with an average saving of £27.64 per year.

The largest amount saved by a client is £265.78 a year.

Over half (52%) Rplan’s clients were unaffected by the changes because they were invested in share classes introduced from March 2014 that already met the new requirements.

Author spotlight

Gary Robinson

Commercial Director, Head of Video at International Investment.