How Much Are You Paying?...
Fees Are Inevitable
Even if you’re a DIY investor, there’ll be fees lurking somewhere. Fees are part-and-parcel of owning an investment or a pension. It might be a personal pension, a SIPP, an ISA, an investment bond, etc. Costs, pretty much, apply to them all!
Fees are invisibly deducted and never touch your bank account. I’m not saying they’re hidden but I am saying it’s not always easy to know what they are. They appear in many forms and here’s some of the key ones.
Platform Fee
Most of us will own funds on something called an investment platform. This enables us to hold different financial products (like an ISA and a pension) in one place. Platforms can be snazzy and usually allow you to access valuations and do other stuff (often on your mobile) but they come at a cost.
I’ve seen them as high as 0.70%pa (that’s £700pa if you have £100,000 invested) but a more typical fee should be around 0.30%pa to 0.50%pa (£300pa to £500pa).
Fund Manager Fees
The platform you hold your money with won’t actually be doing the investing. That will be done by investment fund managers. They do the ‘wheely-dealing’ stuff on your behalf.
How much you pay them depends on how they’re investing your money for you but it can be over 1%pa (£1,000pa of your £100,000). Depending on how you want your money invested, it’s possible to get funds with much lower costs. How does 0.20%pa (£200pa) grab you?! Quite a difference.
Trading Costs
When your fund manager buys or sells funds on your behalf, there’s likely to be trading costs and, potentially, tax. These costs are in addition to the actual fund manager costs.
Individually, trading costs can seem tiny but, depending on how much things are changed around, they can add up and count towards the overall amount that ends up in someone else’s pocket instead of yours.
Incidentally, the fee examples I’ve used are just that, examples. What you’re actually paying could be less or more than that.
Paying your Financial Adviser
If you have a financial adviser (some of you will be lucky enough to have me!), you’ll need to pay them. The fee you pay your adviser is a bit different because you have more of a choice over whether you pay it or not. Typically, financial advisers seem to charge around 1%pa of the funds they look after on your behalf.
Not having a financial adviser could save you money but it depends on what they do for you. Often, if your adviser’s any good, they’ll make up their fee (and some) by giving you sound advice on how to invest, where to invest and keeping things efficient in terms of costs and tax.
Also, for a lot of people, having a financial adviser means they don’t have to deal with the money themselves. Knowing someone’s there taking care of things and holding it all together can be very valuable.
What Do You Do Now?
If you’re a client of mine, I’ll have this covered for you. Costs and value for money are important to me so I make sure I’m always trying to keep costs low for my clients.
If you don’t have (or want) an adviser, you could contact your pension or investment companies and ask them how much you’re paying them.
You could then compare what you’re paying with some of the costs I’ve mentioned earlier which will give you a bit of a guide.
Whether you choose to act or not is your choice of course but, by reading this, at least you’ll have an idea of whether the costs you’re paying are reasonable (or not!).
I’m always happy to talk about this sort of thing. Costs are VERY important and are a bit of a silent assassin on your money so make sure you’re on top of it!
Until next time…