Cheapest way to buy funds discussion

WillD_2

I followed StevieJ's advice and opened a new ISA with H-L. It was really easy. Last year I invested directly with Fidelity through their FundsSupermarket. I thought I was getting a great deal because they were *only* charging 1-2% initial fees. H-L charged me 0-0.25% for the same funds and I get 0.25% discount on the annual fees too. Brilliant!

newfundinvestor

Thanks for the advice on this. I think I made a mistake with the initial charge as it is £0 withs isas ltd


At least I know now that there is plenty of fund info available on various sites.

stphnstevey

Yea shall come back to life! (reserruction complete)

Can anybody clarify and summarise the charging structures of these brokers?

I think I see (I see simply!) it as:

H&L - Almost always refund Initial Charge and some of Annual Charge (averaging paying about 1.25%)

Cavandish - Refund 100% of Annual and Initial. But £20 or so fee

Itelligent Money - As Cavandish, but £35 fee

Concur?

pjbltd

Been reading the thread and found it very interesting but have a few questions and was hoping you guys could kindly help out a novice.

I currently have close to £3000 in a Mini ISA with New Star Asset Management. The money is split between two of their OIECs and was given to me as a present for my 21st (few years back). Apart from the funds not performing very well over the years (losing money!), I also believe I have lost out because as they were bought directly and therefore have paid big management fees.

Would it be possible to move this investment to H&L directly (as opposed to phoning NewStar, selling the shares and then re-investing in H&L)? Would it cost me anything to do this? Would I then benefit from reduced fees?

If it is possible to move my investment to H&L would I then be able to move the money from these poor performing funds into other funds? What are the transfer costs like for this?

Also can I do all this without impacting my ISA allowance for the tax year? I have currently saved £3000 in a cash mini isa and was hoping to save £4000 in a mini isa in funds (hopefully making better fund choices than the newstar ones above).

Sorry for all the questions, but I find this quite confusing

Any help is much appreciated!

Aegis

You should be able to transfer the existing ISA to a new provider without losing the tax free status. Call up Hargreaves Lansdown and ask them for whatever forms you need to open a Vantage mini ISA and transfer assets in from another provider. They should know what you want to do based on that request.

dunstonh

I also believe I have lost out because as they were bought directly and therefore have paid big management fees.

Depends on what you call big. You are losing about zero to 0.25% p.a. depending on the funds.

Would it be possible to move this investment to H&L directly (as opposed to phoning NewStar, selling the shares and then re-investing in H&L)? Would it cost me anything to do this? Would I then benefit from reduced fees?

yes. You dont transfer them but re-register them. It shouldnt cost but you should check to see if the funds have a fund based discount before you do anything.

If it is possible to move my investment to H&L would I then be able to move the money from these poor performing funds into other funds? What are the transfer costs like for this?

If you are going to do this, then transferring them rather than re-registering them and then switching can be cheaper.

Are these funds poor performing compared to peers or is it just that the sector or area they are invested in hasnt had a good run recently?

jamesd

There's a 25 Pound exit fee from New Star for a transfer as stock (without selling the investments) and you'd need to send Hargreaves Lansdown a cheque to cover this.

Since you want to sell anyway it makes more sense to do a cash transfer, which has no exit fee, and you can select what funds you want to buy when you complete the transfer form. These are the charges for New Star funds at Hargreaves Lansdown, 0.25% after the rebate, plus 0.5% stamp duty. Various rebates of the annual charge to your loyalty bonus account that you can eventually invest. You aren't restricted to reinvesting in New Star funds, you can pick any that HL sell.

Your current and future year's ISA allowances aren't affected in any way by transfers of money from past years.

pjbltd

Thanks for the replies!

The two funds I have the money invested in are:

New Star UK Special Situations
http://www.newstaram.com/documents/pdfs/factsheets/oeics/fs-ukspecialsits.pdf

New Star Select Opportunities
http://www.newstaram.com/documents/pdfs/factsheets/oeics/fs-selectopps.pdf

Both were set up for me in a Mini ISA back in Sept ’05 with New Star.

What I want is to have the investment within an ISA Tax wrapper whereby I benefit from:

• Lowest Management/Other Fess
• Ability to swap to other funds without impacting my tax allowance for the year

Transferring to H&L seems to offer both of these as they have discounted charges and you can actively manage your funds online. I am unsure as to whether moving money between funds impacts my tax allowance though, does it?

I am a little confused by the management fee part. Dunstonh you say they are 0-0.25% but according to the New Star pdf’s the “annual charge” is 1.50%. H&L say their “annual saving” for these funds is 0.25%, would this therefore make the annual charge 1.25% with H&L?

Is this % taken off the growth of the fund for Acc funds?
e.g. If price is 170 beginning of the year and rises to 180 by the end of the year.
Growth ~ 5.9%. My wealth has increased ~ 5.9-1.25 = 4.63%

When transferring or reregistering, do I have to worry about “initial charges”?

I have downloaded the forms for transferring, which I was going to fill out over the weekend. But I cannot find anything on re-registering? What is the difference?

dunstonh wrote: »

Are these funds poor performing compared to peers or is it just that the sector or area they are invested in hasn’t had a good run recently?

From what I can tell they have poorly performed compared to their peers, as well as suffering from a sector decline. A lot of websites seem to be slating them, but by looking through their archives I can see they did highly recommend the funds in the past! Although I do not know that much on fund investing, I am dubious about sites giving “free” advice on funds. I would like to wait and see if the funds recover a bit before moving out of them.

dunstonh

I am a little confused by the management fee part. Dunstonh you say they are 0-0.25% but according to the New Star pdf’s the “annual charge” is 1.50%. H&L say their “annual saving” for these funds is 0.25%, would this therefore make the annual charge 1.25% with H&L?

On ISAs, HL discounts many of the funds by refunding some of the trail commission. The range of discounting is zero to 0.25%. In this case, you say the discounts are 0.25%.

I dont know how HL do it on ISAs but when I use a platform to do it the "discount" is actually a rebate and the rebate buys more units.

But I cannot find anything on re-registering? What is the difference?

Re-registering keeps the holdings you have and doesnt take you out of the market. Only the plan manager is changed. In this case New Star to HL. Transferring would sell the units and a cash value is then sent to HL who would then buy new investments as you specify. This takes you out of the market which can be a good thing if the markets drop but bad if it does up. If you want to hold the same funds/units then you would re-register. If you want to change your holdings, you would transfer.

do I have to worry about “initial charges”?

re-registering no. Transferring would depend on the funds you purchase.

but by looking through their archives I can see they did highly recommend the funds in the past!

Yes. That is very common. A lot of these lists are based purely on past performance and not future potential. That said, when you invest you need to keep things under review and you will need to switch every now and then for various reasons and a fund that was good just 12 months ago could be poor now.

I am dubious about sites giving “free” advice on funds.

Advice is not free. A lot of these sites, HL included, product information and offer a quick opinion but that is not classed as advice. You have no FOS protection unless its deemed that they have given too much info which could be interpreted as advice (which has happened and the FOS have suggested that they are likely to uphold complaints on execution only where a "nod" has been given towards a certain fund). As you are not getting advice, they dont have the same liability or costs so that is why you get a small discount.

jamesd

Only putting new money into an ISA that is not already in one will affect your ISA allowances. Transfers using transfer forms from one ISA provider to another never do. Sale and purchase of investments within an ISA also don't affect your allowances in any way - you can buy and sell as often as you like provided the money doesn't leave the ISA wrapper itself.

When writing about zero to 0.25% dunstonh was writing about the difference between holding at New Star and holding at a discount broker IFA like Hargreaves Lansdown, which typically rebates zero to 0.25% of the annual charge.

The annual charge on the fund will be 1.5% (taken in small pieces every day) and you will see the amount that works out to 0.25% a year paid into your loyalty bonus account in small pieces roughly monthly. So after rebate cost will be 1.25%. Actually a little lower because you can't reinvest tiny amounts of loyalty bonus so you lose some compounding of growth on the 0.25%. This is taken of both acc and inc versions of funds.

This is taken from the growth on typical charts which are commonly "bid [price] to bid, income reinvested" but are sometimes "bid to bid" with an option to get "total return" which includes reinvested income - this latter setup is the one HL uses. Bid to bid means that it also includes the other expenses like share dealing costs for the fund management company that show up in the total expense ratio (TER) that is the annual management charge (AMC) plus those costs. 1.75 to 2.0% is fairly typical for TER and this TER is what reduces the growth rate of your investment. TER is mostly of interest because funds using lots of trades can have lots of share dealing costs and funds using derivatives (futures contracts and similar things) can have a higher TER than others. So long as the extra expense is delivering higher returns than competing funds, this is fine - the manger is spending your money to improve your results.

When transferring as cash you do have to pay the initial charge (less the discount) and 0.5% stamp duty for whatever funds you purchase. This wouldn't apply to a transfer as stock (AKA reregistraton) but 25 Pounds is 0.83% of 3,000 so it still costs less to transfer as cash (cost of rebuying after a cash transfer is 0.25% initial charge after discount plus 0.5% stamp duty). The disadvantage of a cash transfer is that your investment is sold so you are out of the market during the transfer, so you lose any gains (or suffer any losses) that you'd have seen during the time the transfer takes.

Reregistering is another way of saying a transfer as stock, that is, the opposite of a transfer as cash and the option you don't want.

If your funds are property funds and you have a long term view, holding them is reasonable. They won't perform as well as they did over the last five to ten years and more drops in 2008 are likely but they should recover. Up to you to decide if you want to switch to something with better shorter term prospects.