Making a mockery of RDR

Today’s blog will be short and sweet but hopefully food for thought.

Much has been made of hidden commission payments and this idea that advice is “free” when in reality it is not. I thought it ironic when I met a representative from a VCT company last week. The conversation went like this:

“Great news we are one of the first VCT companies to offer an RDR friendly share class – we can even facilitate the adviser charge but of course there is no tax relief on this.”

My response “that’s great – so let’s get down to charges. I assume that now you are not paying any commission our clients will see a reduction in the normal 3% up front charge and 1.5% annual charge.”

“No, the charges will be 3% and 1.5% but of course if you don’t provide any advice then we can discount the initial charge, pay you commission up front and an annual fee.”

My response “okay so you are not paying us any commission, and yet you are not prepared to give our clients any rebates.”

“Yes, that’s right. The RDR rules allow us to continue to give commission to non-advised operations but not to you.”

My response “surely you can give the clients enhanced allocations, we are not asking for any payment but as you are giving kickbacks to direct platforms surely our clients should benefit as well.”

“No, RDR doesn’t allow us to to give any enhanced allocation or rebates in case you try and take your adviser charge.”

So here is the rub, we have a complex product promoted by direct platforms who take kickbacks and get enhancements when a complex product really should be advised, and any kickbacks should be passed back to the clients.

This to me is making a mockery of RDR, and not in the spirit of what should be happening.