Commissions shrink in battle of the unit trusts: Investors can get fuller information to make a choice, writes Nic Cicutti

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The Independent Online
UNIT TRUST investors look set to gain from a discount price war breaking out - with increasing numbers of brokers prepared to forgo large slices of commission to win more business.

The discounts are mainly for execution-only services, where investors buy a unit trust without taking advice.

But savers are being offered increasingly sophisticated information by execution-only brokers about the trusts they are buying, broadening the potential to choose between different products.

The price war comes as brokers face having to disclose the commission they earn from January. Next summer unit trusts are also set to move away from the present bid- offer pricing system, which can disguise an initial charge that is often higher than the 5 to 6 per cent usually quoted. Single pricing - one price for both buying and selling plus a set buying fee - will make charges much more transparent.

Skipton Building Society this week launched a commission-rebating telephone service, Unit Trusts Direct, charging a flat 1 per cent on each sale or purchase up to pounds 5,000, with an additional 0.1 per cent above that sum.

On a pounds 5,000 investment where the normal commission is 3 per cent, the new dealing charge is pounds 50, with the rest, pounds 100, rebated. On a pounds 10,000 investment, the saving rises to pounds 245. Investors still bear the setting-up costs applied by the unit tust company.

The service is being offered through Dealwise, a division of Wise Speke, the stockbroking firm. David Charlton, assistant general manager at Skipton, said: 'We believe that what we are doing will be emulated by increasing numbers of building societies and other institutions.

For a pounds 10 annual fee, plus a pounds 5 one-off joining fee, clients of Skipton Unit Trusts Direct can ask for individual fact sheets on any of the 1,400 UK-authorised unit trusts, plus a monthly news sheet with extra performance statistics and comparisons between funds.

This summer, John Charcol, one of the UK's largest independent mortgage brokers, launched an execution-only service for unit and investment trusts, coupled with a monthly 'best buy' sheet sent to clients. It can also obtain hefty discounts from unit trust managers by using its bulk purchasing power.

Chelsea Financial Services, based in Chelsea Harbour in London, is another company specialising in execution-only services, charging 1 per cent commission and rebating the rest.

Sam Simmonds, a director at Chelsea, said: 'We believe that anyone who buys directly off a fund manager needs to have his head examined. The price they pay will include the commission whether it is earnt or not.'

Torquil Clark, a firm of financial advisers based in Wolverhampton, launched a commission-rebating unit trust service earlier this year, charging 1 per cent on deals up to pounds 10,000, 0.5 per cent up to pounds 50,00 and 0.35 per cent. after that.

The service was so successful that last week it launched PEPdirect, where investors pay pounds 25 for any PEP investment, with the rest rebated. Don Clark, manager at Torquil Clark, said: 'We believe that as new rules come into force, requiring advisers to disclose how much commission they earn, more people will want to obtain a good deal. We are moving to provide that service now.'

Victoria Nye, a director of the Association of Unit Trusts and Investment Funds, said: 'We are not against people buying at a discount from execution-only brokers. We do believe that there will still be a substantial number of people for whom detailed advice is essential, and they should be prepared to pay for that advice.'

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