A number of new investors have been asking whether they should delay their first steps into investing because of the disruption caused by the Retail Distribution Review (RDR). We hear this concern often in the Monevator comments and across online forums.
Even some experienced DIY investors seem hesitant because execution-only brokers keep announcing platform fee rises. Switching brokers is an option, but it brings hassle, delays and sometimes extra cost.
Don’t let that hold you back from investing.
RDR Update: Timing and Uncertainty
First, the most important point for potential investors: the new rules for platforms are not immediate. RDR Part One, which ends hidden commission payments to Independent Financial Advisors (IFAs), was scheduled to take effect on 31 December 2012. RDR Part Two, aimed at making platform charges more transparent, has been expected by 31 December 2013.
The intention behind RDR Part Two is that platform fees will be shown clearly in your cash account rather than being tucked away inside a fund’s Ongoing Charge Figure (OCF). The regulator’s theory is simple: visible charges should encourage investors to question value and service levels.
However, the regulator has not yet finalized the rulebook and the timetable could change. The body overseeing these rules is also undergoing reorganisation, which could further delay decisions and create temporary uncertainty.
Why timing matters
If the final rules and platform responses take another year to settle, that can feel frustrating. But avoiding investing while you wait can be costly. Market returns are driven by a small number of strong days each year; missing those can significantly reduce long-term gains.
For example, even modest investment amounts can easily absorb the one-off cost of transferring if you later decide your platform is uncompetitive. Choosing to invest now and switching later is often a better choice than sitting in cash and hoping to time regulatory clarity.
That said, if you’re hesitant for other reasons — uncertainty about risk tolerance, lack of an emergency fund or unclear financial goals — those are valid reasons to hold off until you’re ready.
Potential complications to watch
RDR’s rollout could produce unintended consequences. Here are a few possibilities that investors should be aware of:
- Regulatory inconsistency: EU-level rules and reviews might not align with the UK’s approach, so some European platforms could continue selling funds to UK investors while avoiding RDR’s constraints.
- Definitions and loopholes: Certain execution-only brokers may not fall under the regulator’s definition of a ‘platform’ and could be permitted to rebate commission in cash. The final rulings are still to come.
- Alternative rebates: The regulator is considering whether platforms could return rebates as additional fund units rather than cash, effectively offering bonus shares. If rebates persist in any form, the incentive structure for fund providers and platforms may remain broadly unchanged.
These outcomes would affect how transparent and competitive the platform market becomes, so it’s sensible to keep an eye on updates from the regulator and the platforms you are considering.
Practical steps for new investors
While the regulatory picture evolves, you still need to find a platform to hold your investments. Focus on reputable, low-cost options and platforms that have already signalled their likely approach to RDR. For passive investors building an index fund portfolio inside an ISA, simplicity and low fees matter most.
Here are some characteristics to look for when choosing a platform:
- Low or no platform charges for the types of funds you want to hold.
- Clear, visible charging structures so you’re not surprised by hidden costs.
- A selection of the funds or ETFs you want, including broad index funds.
- Reasonable dealing and transfer fees, and transparent rules on inactivity or account minimums.
Several execution-only platforms have publicly stated their RDR strategies and fee models. If you find a platform that suits your needs today, consider starting with a small amount and transferring later if a better option appears.
More fund availability and platform fees
As the market adapts, more funds—such as those from Vanguard—are becoming available across additional platforms. That widens your choice of low-cost index funds, but platform fees still matter. Some platforms apply their own explicit charging structures that can include an annual fee plus a percentage of assets, which may be significant unless capped.
Ultimately the landscape is unsettled, but that shouldn’t stop you from getting started. Delaying investment solely to avoid anticipated platform charges risks missing important market growth. Start with a plan, pick a low-cost platform that meets your needs today, and be prepared to move if necessary.
Take it steady,
The Accumulator