How can slashing fees be unfair to investors?

Fidelity's commission-free fund sale may be angering IFAs, but it is a welcome development in the war against commission-based advice.

Talk about ruffled feathers. For one month only, Fidelity International is offering 0% initial commission on 30 of its most popular funds. Independent financial advisors (IFAs) aren't happy at all. Why not? Because the January sales promotion is only open to execution-only clients, not those who buy the funds through IFAs.

"Fidelity is effectively encouraging people not to take advice before making important investment decisions", said Adrian Lowcock, senior investment adviser at Bestinvest. "We do not consider this as fully in line with the spirit of 'Treating Customers Fairly'."

But in what world is it unfair to charge customers less? Fees have an enormous impact on investment returns, as we've pointed out before. So any development that allows investors to limit fees should be welcomed.

And while Peter Hicks, head of UK retail sales at Fidelity, says this is not the start of "an emerging trend", it does look like another nail in the coffin of commission-based financial advice. And really, IFAs in general should be pleased about that. With the FSA banning commission fees in the next few years, IFAs will have to look at alternative business models, and the sooner they do so, the better. Fee-only advice is one option.

But the really good news is that if fund management firms cotton on to the idea that they can attract more business by pitching to customers directly and offering lower fees, then that should help to focus both consumers' and fund groups' minds on costs. And hopefully, it should drive down annual management fees too. After all, if fund managers can no longer pull in extra business by paying commission to IFAs, then why encourage consumers to go through a middleman at all?

Recommended

The irresistible rise of ESG investing
Investment strategy

The irresistible rise of ESG investing

Many fund managers talk up their green credentials to sell funds, but buying an environmental and sustainability specialist is the best way to profit …
15 Aug 2022
Why aircraft leasing funds look attractive now
Investment trusts

Why aircraft leasing funds look attractive now

Aircraft-leasing funds crashed during the pandemic, David C. Stevenson explains why the outlook for these funds may be improving.
15 Aug 2022
Why the market is wrong about private equity
Investment trusts

Why the market is wrong about private equity

When it comes to listed private-equity trusts, investors are overly sceptical, with many funds trading at heavy discounts to their net asset values. B…
9 Aug 2022
Asia: long-term opportunities amid short-term noise
Advertisement Feature

Asia: long-term opportunities amid short-term noise

In a tough first half of the year for financial markets, Asia has struggled more than most. But that weakness may represent an opportunity for invest…
26 Jul 2022

Most Popular

Are UK house prices set to fall? It’s not so simple
House prices

Are UK house prices set to fall? It’s not so simple

Figures suggest UK house prices are starting to slide, but we shouldn’t take these numbers at face value, explains Rupert Hargreaves.
11 Aug 2022
Is gold cheap relative to equities?
Gold price

Is gold cheap relative to equities?

Dominic Frisby looks at the Dow-gold ratio and explains why gold is starting to appear inexpensive compared to equities.
12 Aug 2022
Share tips of the week - 12 August
Share tips

Share tips of the week - 12 August

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
12 Aug 2022