Smith, founder of FundSmith, says the platforms receive trail fees and “have a vested interest in management fees remaining high enough to pay their trail fees”.
He says: “The need to pay these trail fees means that fund managers have to charge enough to cover their own costs and profit margins plus the trail fees to the platforms.”
The City veteran says the payment of trail fees introduced an “insuperable conflict of interest”. (article continues below)
He says: “Will a platform carry a fund which does not pay trail fees, or sufficient trail fees, no matter how good its performance? The answer is of course not.”
He adds: “To be effective, RDR would need to ban the payment of all trail fees, with the platforms being paid by charging investors for administration and advice.
“Any bending of that principle would leave in place conflicts of interest which will serve investors badly.”