Chosing a SIPP provider

dunstonh

You could always run two pensions. One hybrid SIPP to cover the funds on negotiated terms with the trail commission and a Full SIPP to cover other unpackaged investments such as shares, ITs etc.

Whilst you may have to search out an IFA willing to do it. The two minutes it takes to email an application, funds list and execution only declaration and then the few minutes to copy and post them on return doesn't warrant keeping much trail commission for yourself. With most funds paying 0.5%, I cant see why 0.35% shouldn't be rebated on a 100k fund where no advice is given.

I have noticed that HL and some of the other SIPPs have negotiated very low initial charges, almost non-existent across the board and I wouldn't be surprised if this is subsidised to some extent by the 0.5% trail. You would see a hybrid sipp offering most funds at 1.2% initial charge but if you have a 0.35% rebate, it counter that within 3-4 years.

You dont have to be a brain surgeon to realise how much those 0.5%s are bringing in every month (0.5%/12). That is where the real money is to the financial services company.

gataylor

dunstonh wrote:

I have noticed that HL and some of the other SIPPs have negotiated very low initial charges, almost non-existent across the board and I wouldn't be surprised if this is subsidised to some extent by the 0.5% trail. You would see a hybrid sipp offering most funds at 1.2% initial charge but if you have a 0.35% rebate, it counter that within 3-4 years.

You dont have to be a brain surgeon to realise how much those 0.5%s are bringing in every month (0.5%/12). That is where the real money is to the financial services company.

Time for me to show my ignorance here. What's the 0.5% trail? Is it just another description of the annual renewal commission?

The terminology certainly is confusing. Let's see if I've got this right - I'm trying to compare the same fund in both SelfTrade and Hargreaves Lansdown. For no particular reason I looked at the Merrill Lynch Gold & General fund.

In SelfTrade it says:
Initial charge: 5.25%
Effective Initial Charge: 0.25%
AMC: 1.75%
(Can I assume AMC is Annual Management Charge?)

In Hargreaves Lansdown it says:
Initial Charges: 5%
Initial Savings: 5%
Annual: 1.75%

So, to make sure I've understood the figures correctly:
SelfTrade costs more in initial charges, because it costs 5.25% and refunds 5% (leaving a cost of 0.25%) and Hargreaves Lansdown costs 5% but refunds all 5%. Yes?
Both pass on the same annual fee of 1.75%, out of which the fund manager pays them a renewal commission (is this where the 0.5% comes in?)

If I've followed this, the a 0.5% annual commission paid to the pension company (SelfTrade or Hargreaves Lansdown) would be £500 on a £100k pension. If I've followed this, I can see what you mean when you say "That is where the real money is to the financial services company"

Many thanks,

Geoff

EdInvestor

gataylor wrote:

Time for me to show my ignorance here. What's the 0.5% trail? Is it just another description of the annual renewal commission?

Yes.Most discount brokers (Selftrade, Sippdeal, HL) will usually rebate all, or most of the initial charge (I think you may have picked an unusual fund to compare) and sometimes they rebate part of the annual charge.The difference between HL and the rest is that HL won't charge you a dealing fee to buy the fund.This is important if you are into a lot of fund switching.However if your portfolio is mainly shares and you have one or two long term hold funds, the advantage will be negated by HL's annual fee for mainly share portfolios (the rest are annual fee free for shares.

So,what do you plan to invest in?Decide that first.

dunstonh

Time for me to show my ignorance here. What's the 0.5% trail? Is it just another description of the annual renewal commission?

Trail is the name given to fund based commission. The 0.5% p.a. (usually paid 0.5%/12 for monthly).

SelfTrade costs more in initial charges, because it costs 5.25% and refunds 5% (leaving a cost of 0.25%) and Hargreaves Lansdown costs 5% but refunds all 5%. Yes?

Different providers will have negotiated different terms for the initial charge. Some could be subsidising it from the 0.5% pa. that they get.

Both pass on the same annual fee of 1.75%, out of which the fund manager pays them a renewal commission (is this where the 0.5% comes in?)

Assuming no rebate on "trail" then you would get the same annual management charge regardless of where you go.

If I've followed this, the a 0.5% annual commission paid to the pension company (SelfTrade or Hargreaves Lansdown) would be £500 on a £100k pension. If I've followed this, I can see what you mean when you say "That is where the real money is to the financial services company"

Correct.

On that fund, I couldnt compete in the short term as I would be 1.45% initial but the AMC would be 1.50% making it 0.25% p.a. cheaper. Obviously there would be a break even point over the years and be better for the long term. This is the sort of balance you need to consider when comparing these companies.

It is also important to check what charges there are on fund switches and if free portfolio rebalancing exists. Some providers look cheap when first investing the money but charge on fund switches which can mask the overall charges.

gataylor

Many thanks EdInvestor and dunstonh for your help.

Cheers,

Geoff