III or Charles Stanley for £150,000 in ISAs ?

DiamondLil wrote: »

However, I can't quite get my head around the charges; CSD talks about 0.25% which I understand very well, but III talk about "rebates" which I don't get at all.
I have read every inch of their website and can't make out how or when this "rebate" is paid and also I have read that it may be subject to income tax?

Don't ignore the rebate altogether.

The complication is that, as you probably already know, until 5 April funds can be sold in two flavours: either "bundled" which means means the AMC includes both sales commission (which would have gone to the IFA or other intermediary) and a platform fee. Typically the a bundled AMC would be 1.50%.

Or they can be "clean" and not include any commission or platform fee so typically with an AMC of 0.75%.

Charles Stanley only offer the clean version and so charge 0.25% platform fee on all funds. So typically that will be 0.75% AMC + 0.25% platform = 1.00%

Interactive Investor offer both clean and bundled funds. On clean funds you just pay the fixed charges already mentioned. So after those charges you just pay the 0.75% AMC.

For bundled funds they receive the commission and platform fee and "rebate" most of it back usually 0.64%. So the cost becomes 1.50% minus 0.64% = 0.86%.

Rebates are tax-free inside an ISA but have tax deducted if outside of an ISA. So unless the fund manager gets up to jiggery-pokery and quietly increases the AMC on clean funds (as Aberdeen have done on some) then clean funds should be the best bet in most cases. All funds come (or will do) in both flavours (classes) and you can check the charges of each at iii.

Or you could look at Hargreaves Landown who also offer both classes of fund but charge their 0.45% platform fee both on clean and on bundled funds. They then rebate some, or in some cases none, of the commission they receive.

So for all the Ruffer funds for example you'd pay 1.50% AMC plus 0.45% platform charges (and a few other charges on top) to make a total of 1.95% and HL keep all the commission plus the 0.45%. Very sneaky and very expensive for clients who don't notice the ruse. They will eventually be forced to stop taking commission but not until April 2016.

So II are very competitive for large amounts though it's probably a valid question to ask just how they can be so much cheaper. I assume they've done their sums and I understand from others that they've promised not to increase charges for at least two years.

grey_gym_sock wrote: »

in some cases, they rebate all the commission. (just for the sake of completeness.)

Yes looks as if there may be some funds where they are refunding all of the commission, which is what they should do after all. But in many, if not most, cases they had special deals with fund managers, including those they heavily promoted and included in the Wealth 150 list, where they received well above the assumed 0.75% and in some cases over 1.00%. So even where they rebate 0.75% that may not be all the commission they get.

As I remember in their presentation to analysts they made clear that hanging on to commission plus the 0.45% on top would form an important part of their profits and projected that only 50% of commission paying funds would be switched over the next 12 months, (They also said then that charges would be "transparent" and that they would "Apply the same charges to all clients", both of which have turned out to be less than accurate.)

I doubt it will endear them to clients who realise particularly those with Ruffer funds as there's also a further 0.50% initial charge if they switch - so locking them in until such time HL allow them to convert.

i wonder if HL are unhappy that ruffer are only giving them class C, not class I, and as a result have decided to keep all the commission on class O. this is just a guess!

The idea that HL are penalising clients as a reprisal for Ruffer failing to co-operate may be a little far-fetched even for them.

Ruffer aren't the only ones to have taken the opportunity to edge up their AMC: Aberdeen and First State are similarly guilty. If HL took just their 0.45% platform and refunded all commission as they should then they wouldn't be affected if clients choose to pay Ruffer's new higher AMC.

As for Ruffer's motivation, perhaps Jonathan Ruffer was offended by Hargreave's famously tacky letter to fund managers that was leaked, asking them to help them out with discounts - or else - and he was sticking up two fingers.

In reality I doubt Ruffer's fees are determined by the behaviour of HL one way or another. Ruffer are primarily a very profitable private client investment firm and are very dismissive about "funds" which seem to be bit of an embarrassment to them. The fee for their IT is a high 1.00%, so perhaps they thought it appropriate for a UT to cost even more. Presumably they also feel that their funds need to be at least as expensive as their charges to private clients.

2 years takes us till when all trail has to be turned off, so i wonder if cofunds (who are keeping some of the trail on funds which pay it) will want more money at that point. or will ii have enough to money from their own explicit charges to keep cofunds sweet?

but then, if ii are too good to be true, what about iweb?

Curious to me is that they were very cheap when just 0.11% was being retained from bundled funds and with clean funds they will get nothing other than the fixed fees. Hargreave's 70% margins show that there's plenty of room for price cutting and II are certainly doing that. Obviously we don't know the profile of their clients or how much is coming to them in dealing fees. They've been around since 1995 but other than that they're privately owned in part by a couple of private equity funds in turn part owned by Rothchild's RIT I don't know much about them.

Clearly L&G/Cofunds won't want to provide their service for zilch and the lowest I'm aware of them going elsewhere is 0.15%. And as you say, what about iWeb? All very interesting.