The Investment Management Association says it is “naive” to assume the FSA’s retail distribution review will drive down overall charges.
As part of the FSA’s recent platform consultation paper, the regulator said it would “be surprised” if annual management charges were maintained at current levels and suggested competition could lower overall costs.
But IMA director of authorised funds and tax Julie Patterson says: “There is a slight naivety to this assumption. What the FSA does not recognise is this does not mean the cost for investors will go down. Yes, it will look as though the returns are better but the overall costs will go up.
“There are tax effects – if the charge goes down, then the return on the fund is better, so there is more income to come on the fund. If there is more income, you will get a tax hit. Out of that taxed income, you will have to pay the adviser and those charges will be charged VAT at 20 per cent.”
She adds that “other parties down the chain”, including platforms, may increase charges to cope with the burden of the RDR.