“Transparency for charges is of paramount importance”

The announcement has created a debate across the internet and has not been well received by retail investors – the charge is hitting smaller investors hardest.

However, the introduction of the charge and investors’ response raise two points which the industry needs to address.

Firstly, transparency of charges is of paramount importance. Hargreaves has muddied the water by taking an undisclosed trail commission from a fund group whilst simultaneously claiming the high ground by introducing a transparent platform fee.

Not surprisingly, their clients are confused about what and how they’re paying. This illustrates why the Financial Services Authority’s plans to overhaul the disclosure of platform remuneration is essential. Of course, it is up to the platform to set their own charges but in doing so they need to be as transparent as possible.

The second issue it has raised is the challenge the industry will face in introducing new charges in the run-up to RDR.

The response from investors over this charge has been understandable but it also demonstrates there is a lot of work to be done to educate investors on the different layers of costs incurred when investing, such as platform fees, adviser fees, broking charges as well as the layers of cost within funds themselves. Funds aren’t ‘free’.

As things stand, it is quite clear that the industry is a long way from being able to explain the total cost of investing to investors.

Fortunately, RDR is helping to move the industry in the right direction. Full disclosure of charges will reduce confusion. In turn, investors will have to realise that they will pay – indeed are already paying – for services, whether for advice or for a platform.

Adrian Lowcock is a senior investment adviser at Bestinvest.