≡ Menu

Why investors should be wary of discounted funds

The big beast of British investment platforms, Hargreaves Lansdown, has revealed the special discount rates it has secured on index funds.

On the face of it, Hargreaves now hosts the cheapest trackers on the market. From UK equity to emerging markets you could easily put together a diversified portfolio using its range. A range that consists of reputable BlackRock and L&G index funds especially discounted, thanks to Hargreaves’ powers of persuasion and market dominance.

Sadly, while the funds are super competitively priced, Hargreaves’ charges for using their platform are not the best.

The reality is you can buy a much cheaper portfolio using standard-priced index funds from a broker that’s happy to keep a smaller slice of the pie for itself.

What they give with one hand they take away with the other

The table below shows the full cost picture once you add in platform fees.

Every Hargreaves Lansdown fund pick is more expensive overall in comparison to rival Charles Stanley Direct when you add the two fees together:

Hargreaves exclusive index funds OCF (%) Platform fee (%) Total (%) Charles Stanley
regular index funds
OCF (%) Platform fee (%) Total (%)
L&G UK Index C 0.1 0.45 0.55 Royal London UK All Share Tracker Z 0.14 0.25 0.39
L&G US Index C 0.12 0.45 0.57 BlackRock US Equity Tracker D 0.17 0.25 0.42
BlackRock Continental Euro Equity Tracker H 0.12 0.45 0.57 BlackRock Continental Euro Equity Tracker D 0.18 0.25 0.43
BlackRock Japan Equity Tracker H 0.12 0.45 0.57 BlackRock Japan Equity Tracker D 0.18 0.25 0.43
BlackRock Pacific ex Japan Equity Tracker H 0.15 0.45 0.60 BlackRock Pacific ex Japan Equity Tracker D 0.21 0.25 0.46
BlackRock Emerging Markets Tracker H1 0.25 0.45 0.70 BlackRock Emerging Markets Tracker D2 0.29 0.25 0.54
L&G International
Index C
0.2 0.45 0.65 Fidelity Index World Fund I 0.15 0.25 0.40
L&G All Stocks Gilt
Index C
0.1 0.45 0.55 Vanguard UK Government Bond 0.15 0.25 0.40

Note: Dealing costs are zero. The above table shows a representative sample of the full HL range.

What’s the difference?

You’d pay 34% more overall for the privilege of holding a portfolio of Hargreaves Lansdown’s “super low cost” trackers in comparison to their equivalents at Charles Stanley, using the following assumptions:

  • The portfolio equally weights the seven fund categories above (excluding the International fund which wouldn’t be needed).
  • Costs are calculated on a portfolio that’s smaller than £250,000. Both Hargreaves Lansdown and Charles Stanley offer reduced rate tiers beyond this figure.

The weighted total cost of the portfolios is 0.59% at Hargreaves Lansdown and 0.44% at Charles Stanley.

On a £10,000 portfolio that’s no big deal: you’d pay £59 to Hargreaves and £44 to Stanley. I wouldn’t rush for the door for the sake of £15, especially when may have to pay exit fees.

But as you go up the scale, the gulf widens. On a £50,000 portfolio you’d pay:

  • £295 p.a. to Hargreaves Lansdown
  • £220 p.a. to Charles Stanley
  • £99 p.a. to a fixed rate broker like Interactive Investor or iWeb (assuming you can keep your dealing costs within the £80 threshold, which is eminently doable for a passive investor).

Imagine your £50,000 portfolio made a return of 3% that year or £1,500. Hargreaves’ charges would snaffle 20% of that return. Charles Stanley would chomp 15% while Interactive Investor would take less than 7%.

That’s a big difference and it exemplifies why inertia and headline claims of “super low cost” deals are the investor’s enemy if left unchallenged.

Of course if we saw, say, a 20% year, then the percentage of returns eaten up by all these charges would be a lot lower. But you can count on returns closer to the 3% end of the spectrum than the 20% end over the long term.

Hi Fidelity

Fidelity is the other big player who is sounding the horn for its exclusive low cost trackers. Again, the manager’s special is a dish best served to someone else:

Fidelity exclusive funds OCF (%) Platform fee (%) Total (%) Charles Stanley
regular index funds
OCF (%) Platform fee (%) Total (%)
Fidelity Index UK 0.09 0.35 0.44 Royal London UK All Share Tracker Z 0.14 0.25 0.39
Fidelity Index US 0.09 0.35 0.44 BlackRock US Equity Tracker D 0.17 0.25 0.42
Fidelity Index Europe Ex UK 0.16 0.35 0.51 BlackRock Continental Euro Equity Tracker D 0.18 0.25 0.43
Fidelitity Index Japan
0.15 0.35 0.50 BlackRock Japan Equity Tracker D 0.18 0.25 0.43
Fidelity Index Pacific Ex Japan 0.2 0.35 0.55 BlackRock Pacific ex Japan Equity Tracker D 0.21 0.25 0.46
Emerging Markets3 0.27 0.35 0.62 BlackRock Emerging Markets Equity Tracker D 0.29 0.25 0.54
Fidelity Index World 0.18 0.35 0.53 Fidelity Index World Fund I 0.15 0.25 0.40

Note: Dealing costs are zero.

As with Hargreaves Lansdown, Fidelity is second class in every category. It even takes a beating from the institutional version of its own World index fund that’s available from Charles Stanley.

The weighted total cost of both portfolios is 0.51% vs 0.45%.4 In other words, you’ll pay 13% more for Fidelity’s exclusives.

That’s only £6 difference on a £10,000 portfolio but as your wealth heads north of £16,000 then you’re increasingly better off with a fixed fee broker.

Cleaning up

Don’t think you’re getting anything special with exclusives funds – sometimes described as Super Clean by an industry that believes you can shift anything as long as you market it correctly.

Super Clean funds are just low-price share classes of regular funds. In other words, they are exactly the same thing except for the discount.

If the discounted fund’s Ongoing Charge Figure (OCF) plus the platform fee amounts to more than you’d pay for much the same thing elsewhere then who wins? Not the investor that’s for sure.

(Ignore any references to Annual Management Charges (AMC) or any other fund fee formulation that isn’t labelled the OCF or Total Expense Ratio (TER) or “total cost of investing”. AMCs are just another little trick designed to wrong-foot unwary investors and to underplay the true costs of a fund).

What’s more, an ‘exclusive’ fund that’s not stocked by other platforms may cause problems if you decide to switch later on.

You may have to sell your exclusive into cash to facilitate the transfer and buy into a new fund that is more commonly available. That’s time out of the market that could cost you more money and may put you off a switch that would otherwise work in your favour.

So don’t be lured in by special offers designed to make you feel better about paying more for the same thing.

Big brands will always try to leverage their cachet but as savvy DIY investors we should seek out their hungrier, more competitive rivals who are prepared to do us the best deal.

Take it steady,

The Accumulator

  1. Full name is BlackRock Emerging Markets Equity Tracker H []
  2. Full name is BlackRock Emerging Markets Equity Tracker D []
  3. Full name is Fidelity Index Emerging Markets []
  4. The assumed portfolio consists of equal weightings of the six equity funds in the table once the World fund has been excluded. This is being generous to Fidelity as the portfolio doesn’t include a gilt fund, a common category where it does not offer a discount. []

Receive my articles for free in your inbox. Type your email and press submit:

{ 54 comments… add one }
  • 1 westy22 March 4, 2014, 10:46 am

    I spent hours yesterday working out basically the same conclusion that you have – I should have gone down the pub instead! Thanks for a great comparison – I just wish you could have published it yesterday 🙁

  • 2 Snowman March 4, 2014, 11:08 am

    Good article.

    It is just a case of finding the cheapest platform in terms of platform cost and choosing from there. And then use what funds are available on that platform. There is no need to further overcomplicate with super clean class issues. Certainly worth seeing if your candidate platform offers Vanguard funds though.

    Those investors where super clean class costs are an issue (and we are into active investors here) probably have more fundamental issues of understanding to deal with. Like why on earth they are choosing funds based on recommendation lists that have offered the platform discounts. That is a particularly poor attempt at outperforming through active funds.

  • 3 IverPotter March 4, 2014, 12:27 pm

    So, would it be fair to say that Interactive Investor received a disproportionate amount of stick for playing their hand early in the post RDR piece?

  • 4 ivanopinion March 4, 2014, 12:32 pm

    @Iver

    Perhaps, although perhaps their real mistake was to insult our intelligence by pretending the changes were for the benefit of customers as they “should” be trading more often.

  • 5 Flipzod March 4, 2014, 12:38 pm

    Great article TA.
    I think the introduction of platform charges due to RDR should make ETFs more attractive to passive investors as you avoid extra charges to add to the TER. Personally, I prefer ETFs as they don’t get charged stamp duty and they’re traded on the exchange and therefore I believe that makes them more transparent. Perhaps, the downside will be the trading cost and spread but some platforms are starting to charge trading costs on funds and OEICs.
    Going by Snowman’s suggestion, I guess you could do a comparison of the fund shops with the cheapest platform charges. It will be interesting to see a comparison of Charles Stanley direct with say Interative Investors, TD Direct (platform charges of 0.35%) and YouInvest (0.20%).

  • 6 ivanopinion March 4, 2014, 12:43 pm

    @Accumulator

    Great article.

    If the same funds as on the Fidelity platform are available through Cavendish, the platform fee would be 0.25%, so the average cost of the same trackers would be 0.41%, which is a touch cheaper than CSD.

    Fidelity would come out better than CSD if you are above the £250k threshold, so the platform fee falls to 0.2%. That would make Fidelity 0.36% vs 0.45% for CSD. Though at that size, the flat fee platforms would work out lower than 0.3% total cost.

  • 7 Flipzod March 4, 2014, 1:02 pm

    To clarify, I’ll use an example.

    For my USA exposure, I use Vanguard’s S&P 500 ETF (VUSA). The TER is 0.09% and the platform charge is zilch. Even with a trading fee of say £10 and a tiny spread, you’ll be hard pressed to find a better deal. Compared to a 0.42% TER with the Charles Stanley index fund above, I’m way ahead!

  • 8 AH March 4, 2014, 1:43 pm

    This article only looks at tracking funds. With such a portfolio choose the cheaper platform. However investors in active funds have other considerations. e.g. Charles Stanley fund performance data is poor and HL have no ongoing charges for holding shares outside an ISA.

  • 9 Geo March 4, 2014, 1:45 pm

    Good one @TA for doing the sums for the peeps!

    .. do note peeps that these sums apply to ISA/Trading Ac only and Sipp’s are a different more complex kettle of fish.

  • 10 rileyceo March 4, 2014, 1:49 pm

    So if you were to stick with Hargreaves Lansdown for a SIPP, are they OK value for ETFs?
    I’ve switched mine out of a Vanguard LifeStrategy to the Vanguard FTSE All World tracker. Guess I’m saving 0.04% from if I kept it in the LifeStrategy.
    Have an ISA with Interactive Investor and I’m a bit sceptical of shifting anymore to them, as I think the savings will be minimal or non existant. On top of that I’d be pusing the £50k FSCS limit…

  • 11 Jonny March 4, 2014, 2:30 pm

    @ivanopinion I couldn’t agree more (I left II as a result). Putting such a spin on things really feels as if they’re insulting my intelligence.

    I have a Barclaycard cashback card paying 1% on all purchases. They sent me a letter over the weekend telling me they were simplifying things for me, by replacing my single 1% cashback paying card with two separate cards linked to the same account (and Amex paying 1% and a Visa paying 0.5%), along with cancelling may of the free benefits provided (extended warranty, insurance etc.)

    Thanks so much Barclaycard for simplifying things for me!

  • 12 dawn March 4, 2014, 3:01 pm

    thankyou monevator
    where would we be without you?

  • 13 Aidan March 4, 2014, 4:48 pm

    @Jonny similarly with HLs attempted Investment Trust charges; do they think we’re stupid?

    Oh and I got the same letter. Why have one proximity card that interferes with your Oyster card when you can have two. Yes, so much simpler….

  • 14 ivanopinion March 4, 2014, 5:05 pm

    @Jonny

    Ah, the simplification card! This was also played by ATS, which tried to portray its recent near doubling of charges (following on from another doubling just 18 months ago) as being in the name of simplification, because they were abolishing some obscure charges that were irrelevant to me.

    At least ATS weren’t actually making things more complicated, so your Barclays example wins the brass neck award!

  • 15 dawn March 4, 2014, 5:52 pm

    can anyone advise? its between ii or i web for me.
    I understand the charges for ii £80 per year but if you invest twice every quarter it wont cost anything? with I web new pricing would I be right in concluding its £5 every time you want to put money into say VLS fund?

  • 16 ivanopinion March 4, 2014, 6:27 pm

    ii is £20 per quarter, but you get £20 dealing credits, which is two normal trades or 13 regular dealing trades.

  • 17 Paul Claireaux March 4, 2014, 6:44 pm

    What really matters when choosing an investment?
    It’s a fair point to make that total costs are a key thing to watch – and yes, we need to add fund charges, platform fees and a few other costs.
    But let’s not forget other providers in our comparisons. Some traditional insurance companies offer incredible value for holding our assets and for reasonable fund sizes will deliver similar if not better total costs to those above whilst also offering free fund switching.
    There is also a BIG question around tax charges to be considered when choosing the right wrapper for our investments.
    It’s tempting to assume that all we’ll ever need (beyond a bank account for our emergency funds) is a SIPP and an ISA. But this is not an effective approach to wealth preservation once we get past the Inheritance tax (IHT) threshold for example. At that point – investing in yet another ISA (unless it’s going to be fully spent in retirement) will expose us to a 40% loss on those funds (yes 40 %!) from tax.
    So beware letting the cost tail wag the financial planning dog!

  • 18 Geo March 4, 2014, 8:00 pm

    As i haven’t transferred away from HL yet, I quickly just checked moving from the old HL Blackrock trackers to the class D ones, not the exclusive class H. So it seems HL don’t do some of these, no pacific or Europe, so either you have to swap to something else or stay with dirty and get the rebate for now.

    One other thing is some un-savy investors could get really confused with the myriad of class out there, I almost clicked on a non tracker as it had class D in the name – silly me.

  • 19 Chris March 4, 2014, 10:02 pm

    Has everyone forgotten 2008? Yes, price is very important but who are ii and iWeb? As a FTSE100 company at least Hargreaves gives me some comfort that my money is safe.

  • 20 foxes1884 March 4, 2014, 10:52 pm
  • 21 Adrian1965 March 4, 2014, 11:54 pm

    @Chris. I share your concern about the financial stability of some providers. Although all should use nominee holdings, how can you be certain, and with life savings it’s worth paying a little more to sleep well at night. That said, iWeb are part of Halifax = part of Lloyd’s so should be at least as secure as HL.

  • 22 neverland March 4, 2014, 11:55 pm

    @chris

    iweb is owned by the halifax, which is owned by lloyds, which is a proper ftse-100 company

    BTW I personally don’t think Hargreaves Lansdowne is going to be in the FTSE 100 for very much longer as all their customers seem to be noticing why it is in the FTSE 100

  • 23 Pete Copps March 5, 2014, 1:04 am

    @paul — Sorry but your comment seems wholly irrelevant. It would apply to all financial decisions, and moreover it will be different for each reader. Is The Monevator website now to add several paragraphs to every article just on the happenstance somebody is looking to pass on an estate? Impractical.

    Whereas I expect my descendants will be pleased I saved every penny I could, and yours too. That’s universally true.

  • 24 Pete Copps March 5, 2014, 1:06 am

    @neverland — very droll! I suspect some truth in it but most of the denizens of Clapham omnibuses are not Readers of The Monevator.

  • 25 Paul Claireaux March 5, 2014, 10:03 am

    To Pete Copps.
    That’s an interesting challenge.
    I would have thought a good proportion of long term investors will have an IHT issue to consider when deciding upon which wrappers to buy. Take account of a modest house in the south east and you’re already used up the IHT nil rate band.
    But the issue is also relevant for those with lower wealth but paying higher rates of tax and already fully funding their ISA. In this situation an ordinary (non ISA) platform account may not be the most suitable on tax grounds. An Insurance bond or something else might be more efficient when we’re looking at the total “drag” on our investments. (charges AND tax)
    So perhaps articles that dig into the detail of charges on one suite of of products should have a simple statement at the top.
    “start by selecting the right wrapper for your money”

  • 26 ivanopinion March 5, 2014, 10:27 am

    @Paul

    Fair enough, think about inheritance tax planning, too. But you still need to think about costs in assessing that planning.

    If you are thinking about clever investment vehicles/structures that avoid IHT, this is extremely difficult to make work, so it requires expensive specialist advice and structures. This can easily gobble up the IHT savings that you hope for, even assuming the clever planning works.

    The clever structures that IFAs have pitched to me usually involve fees of 3% per year. That’s at least 2% more than an ISA or SIPP, so the returns would be 2% lower. At that rate, then it would take just 21-22 years for the compounded fees to have reduced your return by 40%, which is the entire IHT saving. If you are setting up such a structure at age 50, you are likely to live another 35-40 years.

    And that’s ignoring the income tax and CGT benefits of a SIPP and ISA. If the IHT structure does not give the same tax benefits, then the IHT savings might be gobbled up much more quickly.

    Then there’s the risk that these structures are likely to be challenged by HMRC, which will mean further legal costs and the risk that they fail, so you pay the IHT anyway, plus penalties. So, you need to compare the certainty of the extra costs of the IHT avoidance vehicle with the risk-adjusted possibility of saving IHT.

    I don’t think these schemes make economic sense for the investor unless the extra costs are tiny.

  • 27 Lorenzo March 5, 2014, 1:53 pm

    Regarding HL, on a ETF/IT only portfolio within an ISA costs are capped to 45£. Outside Isa costs are zero. That’s good for an ETF/IT based portfolio.

  • 28 Paul Claireaux March 5, 2014, 2:39 pm

    To Ivanopinion.
    If you’re dealing with an adviser who either:
    Charges 2% pa for his advice or
    Is proposing you use structures that are likely to fall foul of HMRC’s anti abuse rules (GAAR) then . . . . you’re dealing with the wrong adviser!

    Non contentious planning in this area is perfectly doable – I’ve done it for my own family.

  • 29 ivanopinion March 5, 2014, 3:09 pm

    I’m not dealing with advisers who meet either of those criteria. I’m aware of several IHT planning ideas that are non-contentious , but I can’t think of any that I can only do as an alternative to an ISA or SIPP. I’d genuinely be interested to learn.

  • 30 Paul Claireaux March 5, 2014, 3:20 pm

    To Ivanopinion
    As you may be aware – under current rules – your SIPP funds are not exposed to a tax upon death before you crystallise them – whereas they are exposed to a 55% tax charge (but only on the non tax free cash element) on death AFTER retirement. Phased vesting of benefits can help to protect part of your SIPP fund from death taxes in this regard.
    The whole of your ISA portfolio is exposed to IHT @ 40% if this applies in your case.
    I don’t think that this is the place (or the blog) to talk through the details of various IHT planning vehicles. If your adviser is a good one – he can do that.
    To Accumulator
    I apologise for taking us off topic enough here – but I guess the point is taken now.

  • 31 bob March 5, 2014, 8:15 pm

    Lorenzo,

    Indeed. As i understand it, In a sipp the charges for an etf/it portfolio are capped at £200 with HL. I plan to stick with HL and swap my funds for etf.

    Another excellent article. Thanks.

  • 32 Lorenzo March 5, 2014, 8:34 pm

    @Bob,

    that is exactly my plan. Cheers!

    Lorenzo

  • 33 FlyByNight March 5, 2014, 10:26 pm

    Great article and interesting comments…

    One other option is to negotiate with HL who seem very interested in keeping their customer base. A quick secure message can result not only in a reduction in the percentage paid – but a cap on the annual charge.

    On a personal basis HL are now affordable again and I plan to stick with them (for the time being)…

  • 34 Paul Claireaux March 5, 2014, 10:29 pm

    To flybynight.
    What a brilliant discovery.
    Better keep that quiet from Mr Hargreaves or he’ll put a “cap” on that dealing activity. The Bentley needs high income to keep the tank topped up!

  • 35 Jonny March 5, 2014, 10:47 pm

    @FlyByNight

    Not for everyone unfortunately. Either I came on too strong in my message, my trading style isn’t what they’re looking for (funds only) or my portfolio and contributions aren’t large enough for them to care.

    I did get offered a free transfer out however (which I’m taking).

  • 36 William March 5, 2014, 11:01 pm

    Currently hold HL SIPP investing in Vanguard Life strategy 60% Equity Accumulation. If Vanguard would launch Life strategy etfs then staying with HL with capped fee at £200.00 would be bearable. HL customer service and website is still user friendly compared to competitors. If they had gone down route of flat fees they would have decimated the competition. Hoping HL or Vanguard come to the rescue. I personally was happy with HL’s pre-RDR arrangements for passive investing.

  • 37 Passive Investor March 6, 2014, 8:00 am

    One other point that has been covered well by Monevator elsewhere but not in this thread is that tracking error not OCR for tracker funds.

    For example a year or so back the Fidelity UK Moneybuilder Fund had an explicit management charge of 0.3% but a hefty tracking error of 0.7%. In contrast Vanguard funds have tracking errors close to zero. In other words the super cheap trackers exclusive to some platforms may not be as cheap as they seem – time will tell.

    For this reason I stick to Vanguard where possible and use iii or ATS.

    On the platform stuff I think it makes sense to avoid HL or Best Invest as their business models tolerate rather than support passive investing. I have moved away from both in the last few years and continue to be bombarded by the very glossy and expensive active fund marketing (masquerading as advice) brochures.

  • 38 The Accumulator March 6, 2014, 9:24 am

    @ Flipzod & Passive Investor – excellent points both about ETFs and tracking error. Definitely both worth looking into as you finesse your decision.

    @ Paul C – IHT planning is an interesting topic but as you acknowledge not what this post is about. It’s not necessary nor advisable to preface every post with a disclaimer on what the post is not about. Brevity is a rare and valuable commodity on the web and even more so on this blog 😉 Why don’t you post some useful links that would help readers who want to look into IHT further and then let’s move on. Cheers!

  • 39 The Investor March 6, 2014, 11:12 am

    For those suggesting that low-cost is not everything when choosing a broker, I actually agree, up to a point.

    I think low-cost is *really* important but there are definitely other decisions.

    Trust — Most of the companies we’re discussing (HL, Halifax, Charles Stanley for instance) are much of a muchness on this — i.e. they are big and trustworthy, as far as we can tell — but some of the smaller outfits are not. And even a big name like Selftrade (owned by Soc Gen in France) has made some investors nervous by being closed to new accounts for a long time, though this seems to be down to an issue with the regulator to do with how it has been holding cash.

    Ease of use — Important, but very subjective. It is a criteria though. For example, you could buy investment trusts in paper certificate form and store them in your bedroom cupboard. Any dividends could be directed to your bank account. This is very cheap in terms of holding costs and very easy, provided you don’t want to trade, but it’s likely expensive in terms of management fees, and it brings in other risks and hassles.

    Some websites are better to use because the fonts are bigger and easier to read, which is better if you’re older and have trouble with the Internet — how many of us younger guns even think about that?

    Customer service — In my experience, this is hit and miss, in investing and everything else. Hargreaves Lansdown has long scored here, and it seems to be going a step further than it has to with the recent turmoil, even if it is managing to confuse/disappoint some with its decision for example to waive exit fees here and there, but not always. (Perhaps it’s waiving fees for the unprofitable customers?) Equally, I think refunding or capping fees for some and not others might work against it long-term.

    The bottom line is customer service is best tested in battle, and even in successful wars some people get shot.

    Diversification — I would not have more than half my money with any single broker or platform or fund provider simply because I wanted to avoid paying a little more with the second or third choice. Fraud and incompetence does happen.

    Future proofing — This is one of the most dismaying things about uncapped percentage fee brokers. As private investors, we should be aspiring to grow our wealth without fear that our decisions are going to start to work against us. Tiered bands go someway towards redressing this, but you still have cliff edges and the like.

    Sustainability — Today’s cheap broker might be tomorrow’s mid-table laggard or worse. That’s the world we’ve now entered. Unless your sport is investing (and if it is make sure you subscribe to Monevator!) it could quickly get old chasing marginally cheaper brokers.

    A move from a percentage fee to a fixed fee that looks sustainable (i.e. not bottom of the bucket cheap or driven by bonuses or similar) is probably wise. A move from a fixed fee broker to another one because its quarterly platform charge has had a tenner knocked off is not my game. 🙂

  • 40 Jonny March 6, 2014, 11:59 am

    @ The Investor

    Some really interesting and relevant points.

    Just out of interest are there any reasons you didn’t mention II in your list with regards to trust?

    On a side note (and slightly related to my above question ;)) I’m in the process of transferring *some* holdings for myself and a family member over to II from HL. I prefer the HL interface, though as a passive investor it’s no big issue to ‘make-do’ with the II platform (and having used it previously it really is fine).

    I’m doing this all for just a (shared) saving of just £80 per year (based on current levels of relatively modest pots), though as these pots grow (which I intend them to), these savings should become more significant. Over 10-20 years there’s a potential saving of £2000 here (before returns are compounded).

    Dealing with II has been a pleasure so far. Quick to answer phone calls on multiple occasions, and helpful to boot. Twice there have been issues that had to be rectified by the customer services rep sending a message to their own manager to resolve (along with a promise it would be done within 24 hours), and much to my surprise both promises were kept (within 4 hours in fact). I only hope they keep these levels of service up (and their fees down!).

  • 41 dlp6666 March 6, 2014, 12:28 pm

    @Jonny

    I’m pleased you’ve have some good experiences with II (unlike mine during the messy transitional period a few years ago when they moved across from using Halifax’s platform to their own bespoke one).

    My hovering uncertainty about them on the ‘trust’ issue, though (or perhaps this is more the technical capability) is that FE Trustnet Direct are apparently going to be using II for their underlying platform. But the launch of Trustnet Direct has been quite seriously delayed due to the fact that they (Trustnet) are still involved heavily in product testing and don’t want to launch until they’re completely satisfied it’s totally up to scratch.

    So if they’ve overshot their original launch date by a couple of months, that implies to me that something might not be quite right with either the underlying competence of II’s system, or perhaps II’s deal with/handling of Trustnet.

    I don’t know for sure, but it just makes me wary (though certainly for some the II cost aspect is very appealling).

  • 42 Paul Claireaux March 6, 2014, 12:32 pm

    To the Accumulator.
    Thanks, yes, i may well offer some basic tips around IHT planning on my site over the coming months – although my site is geared more towards younger investors and savers building wealth rather than those who’ve built it and now have a wealth problem.
    The key point I’d make is that whilst a lot of “drag” on our investments may come from charges (fund, tracking error, PTR, platform charges etc etc etc) a lot can also arise from tax (including income tax outside an ISA or Pension wrapper) and then later from IHT too.
    So wrapper choice is critical.
    Best wishes for now.

  • 43 ermine March 6, 2014, 2:02 pm

    > and then later from IHT too. So wrapper choice is critical.

    I think if you’re rich enough to be thinking about relaying your ancestral wealth across the generations then maybe there’s a cost incurred of taking competent advice as to how to tackle the taxman. It’s probably not one of the most riveting subjects for a busy octogenarian, and after all, this cost hit is presumably only incurred every 60-70 years or so as the old guard pop their clogs.

    Although it comes in one lump, it’s not actually that much compared to the lifetime effect of the steady chip chip of poor value platforms. A steady failure to knock out an 0.5% excessive fee is enough to dissipate 30% (probably more due to compounding) of the ancestral wealth over 60 years across an endowed generation that fails to jump to this. However, presumably that is why people with enough money to pass it across generations use family trusts rather than generic investing platforms aimed the plebs 😉

  • 44 Jon March 6, 2014, 5:47 pm

    I’m in process of converting my H & L SIPP into just two ETFs, VRWL and an I shares Gov bond to escape the 0.45%. I’m tired of faffing around. These are income producing ETFs and the fund is significantly large, so I need to make some calculations (just out of curiosity) on the actual cost of auto re-investing those dividends every quarter and bi-annually. Agree with Investor on diversification of brokers and I only use FTSE100 listed companies (….. and Charles Schwab for USA stock but also listed).

  • 45 L March 7, 2014, 1:07 pm
  • 46 D March 7, 2014, 2:48 pm

    “Future proofing — This is one of the most dismaying things about uncapped percentage fee brokers. As private investors, we should be aspiring to grow our wealth without fear that our decisions are going to start to work against us. ”

    Yes this is what I struggle with. I’m a beginning investor who won’t be putting away all that much per month initially (too much money being swallowed by childcare at the moment).. so investing in funds with Charles Stanley Direct is my cheapest option by far.

    But I can’t get past what will happen in future when I (hopefully) will have a largish fund portfolio which is going to be costing more than dealing fees for equivalent ETFs (which are available elsewhere with no holding fees and quite cheap dealing fees for regular investing).

    If at that point in future I switched to investing in ETFs, I’m going to have dealing costs ON TOP OF the holding fees for the funds.
    Dumping the funds for ETFs in one go seems risky.

    So I keep coming back to thinking I should start off investing in an ETF portfolio even though it’s hard to get the dealing fees low enough at my level of investment (400-900 per month realistically). I would have to look at a 4 ETF (max) portfolio with £1.50 deals with TD or similar.
    But there’s no holding charge so the charges won’t change over time so I can relax as the portfolio gets bigger.

    Any insight as to the sense in paying more now to relieve a problem a few years down the line? Or am I just worrying about it too much and should just take the cheapest option now and worry later?

  • 47 ermine March 7, 2014, 7:26 pm

    @D I am in the position you are concerned with – according to a previous article I should move from TD. It’s a lot less bad for me as I have a mainly share-based portfolio and to be honest the RDR hasn’t endeared me to funds at all. But you have options at that stage

    You can move your ISA portfolio from one supplier to another, though there are costs associated. You can move part of it, too, though the current year’s amount you have ot move all in one go

    There’s a LOT to be said for building up a stake in an index via funds bought monthly, and when this is large enough that annual fees bother you, sell the funds and use the proceeds to buy the equivalent index ETF. The ETF route has higher fixed transaction cost but usually no holding costs, funds have usually no transaction costs (bar spread, sometimes) but annual holding costs. Make this work for you 🙂

    You may also want to consider holding your larger ISA estate across more than one ISA provider, for diversification against a provider going bad, and keeping under the FCA £50,000 limit. This will keep you in percentage fee territory longer, sometimes you have to pay a little for peace of mind

  • 48 The Investor March 8, 2014, 10:45 am

    I’m excited to reveal that The Accumulator will be talking about platform fees on MoneyBox on Radio 4 today at 12. Let’s tune in and give him our support! 🙂

  • 49 ivanopinion March 8, 2014, 4:02 pm

    Just listened using iPlayer. Well done, TA!

  • 50 The Accumulator March 9, 2014, 9:46 am

    Thanks, Ivan! It was fun.

  • 51 spacebadger March 10, 2014, 1:08 am

    Just listened to moneybox show, well done. I have recently recommended this blog as a clear and unbiased place to learn and the moneybox recording vindicates that….

  • 52 AJ March 10, 2014, 11:13 am

    One thing I didn’t notice, but I think should be mentioned is that all these ‘super low cost’ funds also come with a nasty spread. As far as I can see, all the HL suggested trackers come with a spread. Does the cheaper on going charges outweigh the spread?

  • 53 M.A March 11, 2014, 6:41 pm

    I was pretty much clear about all of the changes to-date and since seeing the unit prices of clean funds I am lost again. In theory – certainly in my head – if the AMC goes down from 1.5% (just as an example) to say 0.75% and then the investor pays the broker/platform fees directly then certain on the D-day at least I expected to see the fund unit cost to come down.
    I’ve been monitoring 10-15 UT/OEIC funds and they are all over the place – some are about the same price, others slightly less but a noticeable number way over the unit cost of the dirty/bundled.
    Don’t get this at all! What am I missing? HELP

  • 54 The Champ April 1, 2014, 9:22 am

    I’ve never posted here before but the phone call I just had with HL prompted me to. When pressing them a bit about the change in fees, the call centre staffer said: ‘it’s not an increase, they’re just different’. I pointed out in no uncertain terms that could not possibly be true for every client, and that for me it would mean an increase. What made me angry was that they sounded distinctly like pre-prepared statements from a crib sheet. It may have been a slip of the tongue but I was left with the impression that I was being misled. I wonder how many others have received the same comments? Far be it from me to suggest that HL are deliberately misleading their customers. Thank goodness for monevator and keep up the good work.

Leave a Comment