Stocks & Shares Isa - should I stay away from the banks?

Wygy

Hi all

I'm looking at investing £5k in a stocks and share ISA, I', looking at leaving it in for a minimum of 5 years with the main objective being growth

I popped down this morning to have a chat with the local halifax branch, they recommened a stocks and shares Isa - their Isa Investor account, it looks ok, quite a few options to choose from ranging from adventurous to cautious with pre selected % for certain funds/bonds etc to invest in.

After doing some research I keep reading that the worst place to go to for any investment advice is a bank - I looked into Hargreaves Lansdown and they look like they charge quite a bit in fees, and their is alot more tiem and effort required to choose what you want to invest in

am I right in thinking if you go with a Bank you'll probably pay less in fees but get poorer returns and it will be mroe convenient and if you go elsewhere you'll pay more in fees but get better returns but you also have to put more effort into managing the account?

Does anyone have any good tips for choose an S&S Isa provider?

Aegis

Wygy wrote: »

Hi all

I'm looking at investing £5k in a stocks and share ISA, I', looking at leaving it in for a minimum of 5 years with the main objective being growth

I popped down this morning to have a chat with the local halifax branch, they recommened a stocks and shares Isa - their Isa Investor account, it looks ok, quite a few options to choose from ranging from adventurous to cautious with pre selected % for certain funds/bonds etc to invest in.

After doing some research I keep reading that the worst place to go to for any investment advice is a bank - I looked into Hargreaves Lansdown and they look like they charge quite a bit in fees, and their is alot more tiem and effort required to choose what you want to invest in

Looks like you're comparing the advised service with Halifax's non-advised services. Hargreaves Lansdown would be very expensive for their advised service (and in fact an advised service would probably be a bad idea for just £5k in any case), while their execution-only service is just about the cheapest out there if you're looking to invest in managed funds. No set up costs, no annual costs for maintaining the platform, generally 100% discount of the initial charge and partial discount of the annual charges. In short, a very good deal, but no advice.

am I right in thinking if you go with a Bank you'll probably pay less in fees but get poorer returns and it will be mroe convenient and if you go elsewhere you'll pay more in fees but get better returns but you also have to put more effort into managing the account?

No. You're missing a crucial distinction, so let me separate it out for you. The two options are advised and non-advised, and within the advised option are a number of charging structures. In more detail (for fund brokers or advisers, not for shares):

• Non-advised: You make all the decisions and can get the best possible discounts on everything right up to the extremely large portfolios (where an IFA may be able to offer a fee-based service that would also result in full rebate of all commission, resulting in the cheapest possible option. You're probably looking at millions here though). The broker makes money by keeping a portion of the product commissions while rebating the rest to you, or by charging a fixed fee per transaction/variable fee based on the total holding
• Advised, commission-based: You don't pay any fees, and the adviser is paid from the product charges based on a percentage of new money invested (the initial commission) and a different percentage of the ongoing funds managed by that provider (the trail commission). This is generally what banks offer, with their advisers usually taking 3% or more in initial commission as well as full trail commission. It sounds cheaper, but can actually end up being more expensive
• Advised, fee-based: You pay an hourly rate for the adviser's services and they rebate all product commission to you (or they use it to offset your fees, which can be more convenient). This way of doing business ensures that you don't have any commission-bias, but it can work out very expensive for smaller amounts. There's also a growing trend to charge a fee based on the total funds under management, but that's just commission by any other name.

All fee structures will effectively fall into one of these categories. The other consideration is the remit of the adviser in question (should you decide to take advice), which falls into three categories as well:

• Tied: Only sells products from a single provider
• Multi-tied: Only sells products from a panel of providers
• Independent: (aka Whole of Market) Advises from the entire market

Do please note that the bank advisers are almost always tied or multi-tied, commission-based salesmen, and they usually represent the highest charging structure. Comparing like-for-like, it is almost always better to go to an IFA if you want advice and to a discount broker like HL if you want execution-only.

I can't think of a single instance where banks would be better for investment products.

Does anyone have any good tips for choose an S&S Isa provider?

Hargreaves Lansdown if you're looking for execution-only managed funds. I'm not sure who's currently the best bet for trackers and ETFs, but I have heard that TD Waterhouse and iii might be good starts.

Wygy

Aegis wrote: »

Do please note that the bank advisers are almost always tied or multi-tied, commission-based salesmen, and they usually represent the highest charging structure. Comparing like-for-like, it is almost always better to go to an IFA if you want advice and to a discount broker like HL if you want execution-only.


I can't think of a single instance where banks would be better for investment products.

ok so of the three
Non advised
advised, commission
advised, fees

for the amount I'm looking to invest it seems like advised, commission is my best option?

The Isa investor was pitched to me as only having an annual management fee of 1.5%, there are no set up fees or exit fees, that seems lower than other products i've looked at online...or are they pulling the wool over my eyes?

I don't have the experience/knowledge to go the non advised route, I'm happy to just stick my cash away for the next 5 - 8 years and forget about it

Lokolo

Wygy wrote: »

ok so of the three
Non advised
advised, commission
advised, fees

for the amount I'm looking to invest it seems like advised, commission is my best option?

The Isa investor was pitched to me as only having an annual management fee of 1.5%, there are no set up fees or exit fees, that seems lower than other products i've looked at online...or are they pulling the wool over my eyes?

I don't have the experience/knowledge to go the non advised route, I'm happy to just stick my cash away for the next 5 - 8 years and forget about it

Really?

http://www.h-l.co.uk/funds/Mark-Dampiers-Wealth-150/?tab=savings

Heres a list of HL's top 150 funds, with charges shown.

To work out actual cost do: Initial - Saving

So example:

AXA Investment Managers UK Ltd Framlington Health (Accumulation)

has an insital of 0% and an AMC (annual management charge) of 1.3%

----

But as Aegis has said, HL are the no advice route.

Going by an IFA you will get similar charges, but you can get more charges if you choose a reaccuring program (where they will check your investments yearly/bi-yearly). You can get execution only which will involve a one off fee (commission if you will)

dunstonh

The Isa investor was pitched to me as only having an annual management fee of 1.5%, there are no set up fees or exit fees, that seems lower than other products i've looked at online...or are they pulling the wool over my eyes?

1.5% is the typical annual charge. Hardly any have any exit fees and the reason there is no initial charges is that their investments are rubbish and its the only thing going for them. On some of the lower risk funds, the typical annual management charge is 1.0% but Halifax take 1.5%. So, its better to have an initial charge and lower AMC with better quality.

Aegis

Wygy wrote: »

ok so of the three
Non advised
advised, commission
advised, fees

for the amount I'm looking to invest it seems like advised, commission is my best option?

To be perfectly honest I think you're best bet for this sort of amount is to read up on the various investment possibilities here and in a few other places online, then make your own decisions and pick the cheapest provider that you can find.

Chances are fairly good that any adviser who will see you for just £5k will probably not spend that much time looking at your situation, so you'll end up losing money up front and each year unnecessarily.

With only £5k and the ability to take some risks, all you really need to do is find 5 funds you like the look of. You might choose one bond fund, one absolute return fund, one UK equity fund, one global equity fund and one emerging market fund after 30 minutes or research, after that you just need to allocate a fund to each of these choices and to invest £1000 into each one. This would be quite an adventurous profile before you think that I'm picking something for you, as it would be 80% in equities, half of that in global markets. For someone unconcerned with short term fluctuations, this might be a nice start. For someone looking for a more cautious approach, this would not be suitable.

However, you can see from this that it's not too difficult to start looking at things like asset allocation for something as simple as an ISA. Once you have a basic strategy decided, you can go for the cheapest solution and you can therefore avoid starting out 3% down straight away.

The Isa investor was pitched to me as only having an annual management fee of 1.5%, there are no set up fees or exit fees, that seems lower than other products i've looked at online...or are they pulling the wool over my eyes?

The annual charges generally vary from fund to fund. You choose the fund that has the investment objective that suits you while keeping its annual charges as low as possible.

I don't have the experience/knowledge to go the non advised route, I'm happy to just stick my cash away for the next 5 - 8 years and forget about it

You can try for an advised commission route, but unfortunately the banks are likely to be the only ones who will touch a £5k investment. The danger of that is that they will end up selling you a product rather than giving you advice, as all bank advisers are sales staff with targets and limitations on what they can offer. For example, the HSBC financial sales staff earlier this year were basically operating on the assumption that every customer would need to invest in their World Selection fund, with an explanation to their bosses required if they gave advice that didn't include it. This was an expensive fund with no track record, but because the bank wanted to get money into that fund, customers were expected to be putting their money into it.

Be careful, that's the bottom line.

Lokolo

Also to go on from Aegis point of picking yourself you can use this:

https://www.fidelity.co.uk/investor/guidance-planning/plan-portfolio/myplan-portfolio-quickstart.page?

Its a good start. Not amazing. Gives you an idea of areas you can put your money.

Wygy

thanks for the great reponses gents, defintely not gonna go with the halifax, I might just stick it in a 3 to 5 year fixed rate bond till I get think of something better to do with my cash

Primrose

Well, if you tie your cash up for a minimum of 3 years in a bond fund you might not be able to take advantage of your ISA allowance for 3 years, which might be a mistake if you're a tax payer, even if you take up a cash ISA allowance rather than an equity one. If you're still running a little nervous but want to take advantage of any growth which might be in the equity market over the next 5 years, perhaps split your money up into £1000 blocks, putting them into separate bonds of 1, 2, 3 & 4 years, so that every year you can release £1000 when your bond matures to transfer to an equity ISA. A fiddly option but one which gives you the benefit of having a foot in both cash and equity camps. However, if these are the only savings you have, the equity market is probably not for you as you will need to keep a reasonable sum in easy access cash for emergencies.

Just_landed

Why not open an S & S ISA Account with say iii or similar and buy shares within. You can put most of the top 100 shares within, leave inside for the wrapper for 3 to 5 years, by then dividends should be back as well. Seeing that shares are at a low ebb, buying know you could see a good return (timing is everything) You can cash in at any time so not stuck in for a fixed term either. As for me I have not had any management charges just the dealing costs. Look at it this way Pension funds invest our pension money in shares (stock market) The money you invest can go down as well as up, but that could happen if you use a management team from a bank etc. The difference being your not paying them for that pleasure. :cool:

turbobob

Just_landed wrote: »

Why not open an S & S ISA Account with say iii or similar and buy shares within. You can put most of the top 100 shares within, leave inside for the wrapper for 3 to 5 years, by then dividends should be back as well. Seeing that shares are at a low ebb, buying know you could see a good return (timing is everything) You can cash in at any time so not stuck in for a fixed term either. As for me I have not had any management charges just the dealing costs. Look at it this way Pension funds invest our pension money in shares (stock market) The money you invest can go down as well as up, but that could happen if you use a management team from a bank etc. The difference being your not paying them for that pleasure. :cool:

With respect the dealing costs you'd pay if you were to buy most of the constituents of the FTSE100 individually would be significant. Lets say 100 constituents, at £10 a trade would be £1000 just to buy the shares! Then theres 0.5% stamp duty on each buy as well. I'm not sure if that's what you meant exactly?

Compare that to a fund where you pay minimal or no up front costs and an annual management charge from around 0.3% (for a basic tracker).