Fidelity has said it will introduce commission-free share classes across a range of mainstream funds ahead of the implementation of the retail distribution review at the end of next year.
The UK’s second-largest retail funds group has already introduced shares with a new 1 per cent commission-free charge, or Y class, on funds aimed at wealth managers – a significant reduction to the present average charge on retail funds, including commission for advisers, which will be banned after the RDR comes into effect.
Annual management charges on retail funds are typically 1.5 per cent of assets. Of that, 0.75 per cent typically goes to asset managers such as Fidelity, 0.25 per cent to platforms like FundsNetwork and 0.5 per cent to advisers as trail commission.
Even if advisers accept fees from clients rather than commission from asset managers, the charge remains at 1.5 per cent. The commission portion typically reverts to the asset manager.
According to Ed Dymott, the head of commercial at Fidelity in Britain, including its investment platform FundsNetwork, the first challenge is to ensure that clients who pay advisers a fee do not also pay the extra 0.5 per cent as part of their annual charge. He says FundsNetwork is already negotiating with fund managers to secure this outcome before the RDR is introduced.
However, Dymott has warned some aspects of the RDR could yet be delayed until after the end of next year, creating the possibility of an “RDR two”.