Retail Distribution Review
RDR FAQs

Retail Distribution Review - Frequently Asked Questions

General questions about RDR and the changes 

1. What is the Retail Distribution Review (RDR)?
RDR is an initiative of the financial services regulator, the Financial Conduct Authority. Its objective is to raise professional standards in the industry, introduce greater clarity between the different types of service available, and make the charges associated with advice and services very clear.  

The review covered the services offered by both financial advisers and investment firms and the rules which have resulted from it required firms in the retail investment market to make significant changes.
 
 
2. What do the changes mean for Barclays Stockbrokers investors 

RDR introduced new rules from 6 April 2014 that related to retail investment products. This means we’ve changed the way you pay for administration services for certain investments you hold with us. We are applying these changes to funds only.

Fund managers charge investors an Annual Management Charge (AMC). This is their fee for managing the fund and it is deducted directly from the fund rather than being charged to your account or invoiced separately.

Previously fund managers generally paid part of this AMC to brokers and intermediaries (in this case Barclays Stockbrokers) for providing services associated with distribution and administration of holdings in the funds. This part of the AMC is commonly referred to as a ‘trail commission’, ‘trail fee’, or sometimes a ‘fund manager rebate’. This helped to pay for the services we provide including administration, custody, operating the website, processing dividends and corporate actions, providing fund factsheets and fund dealing services.

Instead of using trail commission payments, our regulator wants investment ‘platforms’, such as Barclays Stockbrokers, to charge clients explicitly for their services and therefore make charges clear and easy to understand.

We’ve done this by introducing a new fee, called the Fund Administration Fee, which is paid by you directly to Barclays Stockbrokers. At the same time, fund managers have introduced ‘clean share classes’ which usually have lower AMCs as they no longer pay trail commission to us.

Although we’ve introduced a new fee, the Fund Administration Fee, other fund related costs are falling and most clients will pay less to invest in funds.

3. What types of investments does the new charge apply to?
The Fund Administration Fee only applies to funds.  Investments in shares, Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs), Investment Trusts, or gilts & bonds will continue to be charged through trading commission. See our guide to charges

4. When will the changes happen? 
In 2014 we launched ‘clean share classes’ on our Funds Market for your fund purchases.  We also converted your existing funds into cheaper share classes where the change made it cheaper for you, and started applying the Fund Administration Fee to ‘clean share class’ holdings.  In November 2015 we will start converting the remaining bundled funds to clean where this is possible.  From 1 January 2016 all holdings will be charged the Fund Administration Fee.

  • 1 March 2014 – 'Clean share classes' available – Fund Administration Fee started accruing (no minimum fee applied at this stage)
  • 1 March 2014 – Conversion of bundled share classes began
  • 31 October 2014 – First calculation of the Fund Administration Fee was generated and fee statement sent
  • 1 November 2014 – Minimum fee started
  • 20 November 2014 – Debit first Fund Administration Fee
  • 13 November 2015 – Conversion of remaining bundled share classes begins
  • 1 January 2016 – Fund Administration Fee applies to all fund holdings, including bundled funds

5. Where can I get more information on RDR? 

You can find more information at BarclaysStockbrokers.co.uk/rdr where you’ll find information on how the Fund Administration Fee is calculated and applied, details on the share class conversions we have made, and where you will also find a glossary of terms.

6. I am transferring my funds to Barclays Stockbrokers. How will the changes affect me?
If you’re transferring bundled funds to Barclays Stockbrokers we will switch them to the equivalent ‘clean share class’, where available when we receive the holdings from your existing provider. The Fund Administration Fee is chargeable from when the clean fund settles on your account. If there is no ‘clean share class’ available we’ll let you know and explain your options. Find out more

7. What accounts do the changes apply to?
The charge applies to any account you hold funds in, including MarketMaster®, Investment ISA, SIPP, Pension Trader Account and Corporate Accounts. If you only hold funds in your account, you won’t pay an Account Administration Fee but you will pay a Fund Administration Fee based on the value of the funds you hold, subject to a minimum charge. 


 

General questions about funds 

1. What is a fund?
A fund is a ‘collective investment vehicle’ that allows you to invest indirectly in equities, bonds property or other types of assets. It's collective in the sense that your money is pooled with that of other investors. A fund manager runs the fund and selects the investments it holds in line with the fund objective.    

Most funds offered to UK individual investors are open-ended, which means that a fund manager issues new shares or units when they get new money in, or cancel shares or units when investors take their money out. This means that the price of individual units are not usually affected by imbalances between investors wanting to buy or sell. The price of units should therefore typically reflect the value of the assets in the fund.  
 

2. What is a share class? 

  • Most fund managers offer different classes of shares or units in their funds. Each fund may be available as several different classes, e.g. A class, B class, Retail class, I class etc.
  • These different classes of shares have different levels of Annual Management Charge (AMC) and are designed for different kinds of investors e.g. they can have a different minimum investment amount per transaction.
  • Historically, share classes available to individual retail investors had AMCs that, in addition to the fee the fund manager earned, embedded trail or other types of commission that was paid to distributors (e.g. Barclays Stockbrokers) for the services they provided. These are frequently referred to as ‘bundled share classes’.
  • As a result of RDR and the new regulations, fund managers have introduced new share classes.
  • They’re doing this in a number of different ways:
  1. by launching completely new share classes of their funds that do not embed trail or other commission. These new share classes are commonly referred to as ‘clean share classes’

  2. by reducing the charges on existing funds

  3. by allowing individual investors to buy share classes with lower charges which were previously restricted to only large institutional investors.
  

3. Why are there different share classes and what do the differences mean to me?
Fund managers often want to attract investments from different types of investors. It’s quite common for a fund to have share classes in several currencies for overseas markets, to offer share classes which pay out dividends and others which reinvest dividends, and to provide share classes for institutional investors such as company pension schemes which carry large minimum investment amounts.

As a retail investor in the UK, you’ll be interested in whether the share class pays dividends or not, the AMC and any initial charges. 

4. Do clean share classes give me better returns than my current bundled share classes?
Yes.  All fund managers deduct an Annual Management Charge (AMC) from the fund and that will reduce the returns that you get as an investor. ‘Clean share classes’ have lower AMCs so that reduction is smaller.

5. Why does share class conversion change the number of units I hold?
Clean and bundled units have different prices, often because over time the clean units increase in price in comparison to the bundled, as lower charges are being deducted from them. As the different share classes have different prices this means any conversion is not done on a 1:1 ratio and the number of units you hold will change. 

6. Can I buy and sell the different share classes of a fund in the same way?  

From 1 March 2014, the only funds we offer to buy on our Funds Market are clean funds. Bundled units which you continue to hold that have not been converted to a ‘clean share class’ you can still be sold as normal either online or by phone, however you can place no further purchases. 

7. What is the difference between an income and accumulation share class within a fund?
Income units in a fund pay out any returns to the investor. Usually these will be on bond funds or funds investing in shares that pay out dividends. Accumulation units don’t pay out returns and instead they are reinvested back into the fund.

It’s up to you to decide which type of unit you would like to invest in where both are offered by the fund manager. Usually you’ll see the term Inc (income) or Acc (accumulation) within the name of the share class. If you don’t, check the fund factsheet.

In some cases a fund manager may only make one type of unit available. For example, a bond fund may only have a ‘clean share class’ which distributes the interest received, deciding not to make available a ‘clean share class’ of the accumulation units.


 

Fees and commissions

1. What is trail commission?
Fund managers charge investors an Annual Management Charge (AMC). This is their fee for running the fund and it’s deducted directly from the value the fund. Historically, for individual investors, this fee has been around 1.5% per year for actively managed equity funds, and lower for passive funds, also known as tracker funds.

Until now, fund managers have paid part of this fee to brokers and intermediaries for providing services associated with distributing and administering holdings in the funds.  Both Independent Financial Advisers (IFAs) and ‘platform service providers’, like Barclays Stockbrokers, have received this part of the fee, which is known as a ‘trail commission’, ‘trail fee’, or sometimes a ‘fund manager rebate’.  This pays for the services we provide to support your investments including providing the website, processing dividends and corporate actions and dealing services. 

2. Will I pay more or less?    

Although we have introduced a new fee, it replaces trail commission which was generally more expensive and previously rolled into the Annual Management Charge (AMC) levied by fund managers. 

Investors likely to pay more due to the Fund Administration Fee minimum charge

We expect the majority of our clients who generally hold more than £4,000 in funds will pay less. However, those with less than about £4,000 in funds are likely to pay more. Although the AMC will be lower when we convert your holdings to a ‘clean share class’, you’ll have to pay the minimum Fund Administration Fee of £35 per year, per account. The savings from lower AMCs will not offset this minimum fee and it might make your total investment cost more. 

The table below gives an illustration of the comparative costs.
 
Fund holdings in clean share classes Fund Administration Fee*  Estimated AMC^ Estimated combined clean share class cost Estimate of cost in bundled share class# Estimated difference
£2,000 £35 £14 £49 £30 £19 more
£4,000 £35 £27 £62 £60 £2 more
£6,000 £35 £41 £76 £90 £14 less
£8,000 £35 £54 £89 £120 £31 less
£10,000 £35 £68 £103 £150 £47 less
£15,000 £53 £102 £155 £225 £71 less
£20,000 £70 £136 £206 £300 £94 less
£25,000 £88 £170 £258 £375 £118 less
£30,000 £105 £204 £309 £450 £141 less
£35,000 £123 £238 £361 £525 £165 less
£40,000 £140 £272 £412 £600 £188 less
£45,000 £158 £306 £464 £675 £212 less
£50,000 £175 £340 £515 £750 £235 less
£75,000 £263 £510 £773 £1,125 £353 less
£100,000 £350 £680 £1,030 £1,500 £470 less
£150,000 £525 £1,020 £1,545 £2,250 £705 less
£200,000 £700 £1,360 £2,060 £3,000 £940 less
£250,000 £875 £1,700 £2,575 £3,750 £1,175 less
£300,000 £1,050 £2,040 £3,090 £4,500 £1,410 less
£400,000 £1,400 £2,720 £4,120 £6,000 £1,880 less
£500,000 £1,750 £3,400 £5,150 £7,500 £2,350 less
£600,000 £1,750 £4,080 £5,830 £9,000 £3,170 less
£700,000 £1,750 £4,760 £6,510 £10,500 £3,990 less
£800,000 £1,750 £5,440 £7,190 £12,000 £4,810 less
£900,000 £1,750 £6,120 £7,870 £13,500 £5,630 less
£1,000,000 £1,750 £6,800 £8,550 £15,000 £6,450 less
*The Fund Administration Fee is 0.35% per annum or £35 per year, per account, whichever is the greater
^The AMC has been calculated based on the average AMC available on ‘clean share classes’ via Barclays Stockbrokers from March 2014 of 0.68% per year
# The bundled AMC has been calculated based on an illustrative 1.5% per year.

Correct as at October 2015
 

Some of the figures in the table have been rounded. 

Investors who opted out of share class conversions 

We gave the choice to opt out of each fund conversion and remain in the ‘bundled share class’ for the conversions carried out in 2014. From November 2015 we will convert all possible bundled holdings on a compulsory basis.

Investors who held ‘clean’ or institutional funds prior to 1 March 2014 

Some investors already held share classes where no trail commission was paid to us; they were already clean. These share classes won’t be changing, the AMC won’t come down and they were already classified as ‘clean share classes’. However, from 1 March 2014, the Fund Administration Fee has applied to these fund holdings.

3. Why have you introduced the Fund Administration Fee?      

Instead of using trail commission payments to cover our costs, our regulator wants us to charge clients explicitly for our services.

From 6 April 2014, we do not receive trail commission from fund managers on any new funds purchased. From 1 January  2016 we will earn no further trail commission payments.

Fund managers have introduced ‘clean share classes’ to cater for these structural changes. ‘Clean share classes’ are normally cheaper and do not pay trail commission.

Here’s what happens:

  • The Annual Management Charge (AMC) - the amount you pay the fund manager -  for most funds is lower, from around an average 1.5% per year to typically 0.68% per year through us. The actual AMC varies from fund to fund and may be higher or lower than this.
  • Barclays Stockbrokers charge you directly for fund investment administration services. Where you hold funds in your accounts with Barclays Stockbrokers you pay this via our ‘Fund Administration Fee’. The Fund Administration Fee is 0.35% with a minimum charge of £35 per year, per account. We calculate this daily on the value of your chargeable fund holdings. 

The Fund Administration Fee is charged on fund holdings in your account up to £500,000. For example if the value of funds in your account is £750,000, we will apply the Fund Administration Fee as if you held only £500,000 worth of funds. The fund managers will continue to charge the relevant AMCs on all each of your fund holdings. 

4. How is the Fund Administration Fee calculated?
We multiply the value of your holding by the daily percentage which is the annual 0.35% charge divided by 365 days of the year.  This gives the amount payable for your holding.

If you have a small or a large fund holding however you are charged the minimum or maximum if your calculated fee falls outside those levels.

The minimum fee is the annual £35 minimum charge divided by 365 days so 9.59p per day. The fund fee is only payable on the first £500,000 of fund holdings so the maximum charge per day irrespective of the value of your chargeable fund holdings is 479.45p per day. This is calculated on £500,000 multiplied by the daily charge of 0.35%/365.
 
Example 1
If you have just one clean fund holding worth £2,000.

For one day we calculate £2,000 x (0.35% annual charge / 365 days) = 1.92p.

The minimum daily charge however is 9.58p (£35 per year minimum charge / 365 days) so this would be the charge applied each day that the calculated charge is below 9.58p.

From 1 November the minimum charge of £35 per year applies and this is applied to the daily calculation.

At the end of the charge period, normally a calendar quarter, we then add up the daily total fees to get your total charge for the quarter.  This assumes you have made no other purchases or sales.

If we imagine that the value of your fund stays at £2,000 for each day of the charge period, and there are 91 days in the quarter, we add up the daily total fees to get your total charge for the quarter: 91 x 9.58p = £8.72.  This would be your Fund Administration Fee charge for the quarter.

 
Example 2
You have ten ‘clean’ fund holdings, each worth £2,000

As above, for one day we calculate £2,000 x (0.35% annual charge / 365 days) = 1.92p for each fund.

We add up the charge for all your chargeable funds which is 10 x 1.92p; so your charge for that day is 19.2p.

These calculations are then repeated every day, and in reality the values of each of your funds would vary.

As in the above example, we make the same assumptions around the value remaining the same, no further purchases or sales, and a standard quarter charge period.

At the end of the charge period  the charge calculation is 91 x 19.2p = £17.47.  This would be your Fund Administration Fee charge for the quarter. 
 

When the time comes to charge the Fund Administration Fee we just add up the amount for each day in the period. Fees are calculated quarterly at the end of January, April, July and October. There are a different number of days in each quarter and the fees will reflect this.

For the period that you are using our Regular Investment Service we will not apply the minimum Fund Administration Fee. Your instruction needs to be in place during the last two weeks of the quarterly charging period.

Also, for the period that you are using our Regular Investment Service we will not apply the minimum Fund Administration Fee. Your instruction needs to be in place during the last two weeks of the quarterly charging period.

The table below shows how much we would charge for a whole year for different amounts in clean share classes compared to bundled share classes.

Fund holdings in clean share classes Fund Administration Fee*  Estimated AMC^ Estimated combined clean share class cost Estimate of cost in bundled share class# Estimated difference
£2,000 £35 £14 £49 £30 £19 more
£4,000 £35 £27 £62 £60 £2 more
£6,000 £35 £41 £76 £90 £14 less
£8,000 £35 £54 £89 £120 £31 less
£10,000 £35 £68 £103 £150 £47 less
£15,000 £53 £102 £155 £225 £71 less
£20,000 £70 £136 £206 £300 £94 less
£25,000 £88 £170 £258 £375 £118 less
£30,000 £105 £204 £309 £450 £141 less
£35,000 £123 £238 £361 £525 £165 less
£40,000 £140 £272 £412 £600 £188 less
£45,000 £158 £306 £464 £675 £212 less
£50,000 £175 £340 £515 £750 £235 less
£75,000 £263 £510 £773 £1,125 £353 less
£100,000 £350 £680 £1,030 £1,500 £470 less
£150,000 £525 £1,020 £1,545 £2,250 £705 less
£200,000 £700 £1,360 £2,060 £3,000 £940 less
£250,000 £875 £1,700 £2,575 £3,750 £1,175 less
£300,000 £1,050 £2,040 £3,090 £4,500 £1,410 less
£400,000 £1,400 £2,720 £4,120 £6,000 £1,880 less
£500,000 £1,750 £3,400 £5,150 £7,500 £2,350 less
£600,000 £1,750 £4,080 £5,830 £9,000 £3,170 less
£700,000 £1,750 £4,760 £6,510 £10,500 £3,990 less
£800,000 £1,750 £5,440 £7,190 £12,000 £4,810 less
£900,000 £1,750 £6,120 £7,870 £13,500 £5,630 less
£1,000,000 £1,750 £6,800 £8,550 £15,000 £6,450 less
 *The Fund Administration Fee is 0.35% per annum or £35 per year, per account, whichever is the greater 
^The AMC has been calculated based on the average AMC available on clean share classes via Barclays Stockbrokers from March 2014 of 0.68% per year 
# The bundled AMC has been calculated based on an illustrative 1.5% per year.
Correct as at January 2014 
 

5. Why don’t you charge a minimum fee for regular investments?
The regular investments service is designed to help clients ‘drip’ money into the market on a regular basis. It is often used by clients who are just starting out in investing. Regular investment is generally recognised as a good way to invest for the longer term.

If you make regular investments into your account, we’ll waive the minimum Fund Administration Fee and simply apply the 0.35% per year rate per day equivalent.

6. How do I pay the Fund Administration Fee?    

You pay your Fund Administration Fee as you pay any charges on your account. It either comes out of your Barclays Stockbrokers account or is charged to your external bank account. You can also make a debit card payment once the fee has been calculated and you have received your Fund Fee Notification.

The Fund Administration Fee is calculated quarterly.  The fee is deducted 14 working days later. We’ll always inform you of the amount due before it is charged, and tell you when it will be applied to your account.

7. What does the Fund Administration Fee cover?   

The Fund Administration Fee covers the costs of providing investment services to you. These costs include arranging transactions in funds, whether buying or selling, as well as reporting services, custody, processing dividends and corporate actions, research, the cost of looking after and administering your fund investments, and the provision of a secure website through which you can manage your funds.  

8. How do I know how much I am paying overall for my fund(s)?  
You can find the Annual Management Charge (AMC) for each fund on the relevant fund  factsheet  . You then add our Fund Administration Fee. This is either 0.35% per year or a minimum of £35 per year, per account - whichever is higher. The Fund Administration Fee will be charged on fund holdings in your account up to £500,000. Please remember that the AMC is just the charge taken from the fund by the fund manager for managing the fund. The Ongoing Charges Figure (OCF) shown on the fund factsheet and the fund manager’s Key Investor Information Document (KIID) shows the total figure for costs deducted from the fund, not just the amount charged for the fund manager’s services. 

9. Do I pay a Fund Administration Fee on funds where you receive trail commission?  

No. We no longer receive any trail commission from fund managers. From 1 January 2016 the Fund Administration Fee applies to all fund holdings.

10. Do you make any other fees for managing my funds? 

Our document, ‘Your guide to our charges’  clearly sets out all our charges.

They include account fees to cover the administration of your account when you hold assets such as shares and Exchange Traded Funds (ETFs) which are traded on the stock exchange. If you only hold funds in your account, we waive these charges, although the Fund Administration Fee will still apply.

Buying and selling funds  

1. Do I have as much choice of funds following the RDR changes? 

Yes – we now offer more than 2,000 ‘clean share class’ funds to buy on our Funds Market and this number continues to grow.   

2. What happens if I am not happy with the changes that you have made?

You can obviously consider whether it would be better to transfer your investments to another provider. But remember, the changes that we have made to the way that we manage funds applies to all other providers too. The differences will relate to the charges applied and whether existing investments are being actively converted.  

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