British one pound sterling coins stand in front of a British Union flag, also known as a Union Jack, in this arranged photograph in Guildford, U.K., on Monday, June 13, 2016. Sterling swung on Monday as anxiety about Britain’s referendum on staying or leaving the European Union continued to build. Photographer: Jason Alden/Bloomberg
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The cost of retail investing in Britain remains above 2.5 per cent annually, down just 10 per cent in the three years since the UK imposed sweeping changes to the way financial advisers serve consumers, according to data supplied to the Financial Times.

An investor who buys financial advice and investment products from a single mass market investment group will pay fees equal on average to 2.56 per cent of their portfolio value this year, according to a study by Grant Thornton.

In December 2012, the month before the Financial Services Authority introduced new rules for financial advisers following its Retail Distribution Review, that average annual fee was 2.86 per cent, Grant Thornton said. The RDR banned advisers from taking commissions from manufacturers of financial products.

Consumer groups had hoped the RDR would lead to much lower ongoing charges for owning investments, such as the actively managed funds run by professional stockpickers.

“People shouldn’t still be paying towards 3 per cent a year to be a retail investor,” said Mick McAteer, a consumer advocate who sat on the board of the FSA and its successor regulator the Financial Conduct Authority for six years until the start of 2016. He said that the RDR had succeeded in removing the incentive for advisers to recommend products that paid the most commission.

“But there remain very significant problems in this supply chain and the ongoing costs people are paying are a big concern. There needs to be more intervention here,” he said. An FCA spokesperson declined to comment.

Charges levied by UK active fund managers, who used to recoup commissions through ongoing fees, have fallen sharply in the UK since the commission ban, according to fund tracker Morningstar.

But the overall costs for retail investors have not dropped as much, according to Grant Thornton and a second survey by wealth management platform provider True Potential. Industry experts speculate that the financial advice industry has replaced some of the money it used to earn from product commissions by charging higher ongoing fees to clients.

True Potential, which says it gathers costs data by monitoring its customer base of 4,000 UK financial advisers, calculates that the average retail investor gives up 3.1 per cent of their portfolio in the first year of their relationship with an adviser. This cost was 2.99 per cent in 2012, the Newcastle-based group said.

Grant Thornton conducts quarterly fee surveys by studying mass market money manager’s fee schedules. It assumes a hypothetical retail investor has entrusted £100,000 to integrated advisers and investment managers such as St James’s Place or Hargreaves Lansdown, and tracks initial advice costs, ongoing investment fees, the costs of owning financial products and VAT paid to the government.

Advisers tend to put mass affluent clients with portfolios of £100,000 into pre-designed portfolios of investment funds, said Abraham Okusanya, a consultant to the wealth management industry.

“That will cost 0.75 per cent to 1.1 per cent. But in many cases they will charge you the same amount again for what they say is ongoing advice. There is a big debate in our industry about how you justify 1 per cent on an ongoing basis, taken every single year.”

Analysts say that it remains hard for consumers to shop around.

Some retail money management companies now publish costs of individual services, such as share trading or financial planning, online. These can be expressed as a mixture of cash fees, hourly rates and percentages, and often do not include VAT, said David McCann, an analyst at Numis Securities, making them hard to add up.

“There is definitely more transparency about each individual silo in the value chain. But finding out what this is taking off of your whole pot is harder to understand,” he said.

“If you were an average saver looking [online] to put a shortlist together of firms you may interview to become your wealth manager and you wanted to compare their costs, you just can’t do it.”

For more on the costs of financial advice, including who charges what and how to get your fees down, see FT Money’s special report.

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