Wealth managers are calling for venture capital trust (VCT) providers to disclose their retail distribution review (RDR) charging structures, as fears mount that an unlevel playing field will be created between advised and non-advised clients.
Their calls come as few VCT providers are understood to have come out with clean charging structures ahead of the RDR deadline of 1 January. This means advised clients will be paying the same for the product as clients of execution-only brokers – with the latter able to take on trail commission post-RDR.
‘Effectively advised clients will be subsidising commission payments made to non-advised discount brokers and execution only businesses,’ said Richard Hancock, technical operations manager and chief investment officer at the Financial Management Bureau.
‘I have raised the issue with our chosen providers for VCTs and made it clear that we are very unhappy with this situation and would have to review our panel and chosen partners in the new year. Alternatively, we would be looking for managers to make an equivalent rebate from the initial charges for advised clients.’
An FSA spokeswoman said product providers were under no obligation to promote details of their RDR-ready charging structures before 1 January, providing appropriate fees are in place on the day the RDR comes in to effect.
‘They wouldn’t necessarily have to announce them according to our rules,’ she said. ‘The advisers will have to make a decision that considers cost and something that has got commission stripped out is going to be more cost effective for the client.’
Investec Wealth & Investment’s Nick Sketch said while he disagreed with product providers taking trail commission, part of the trouble with VCTs is that many are too small, and the costs of rejigging their charging structures could be prohibitive.
‘If you have a VCT that is £15 million – and quite a few of them are – how much benefit do you think you are going to get making a change if you are going to spend £500,000 on legal fees to do it?’
Meanwhile, independent VCT specialist Jeremy Spencer described the reticence of VCT providers in arranging clean share classes as ‘yet another unintended consequence of RDR’.