Low cost tracker funds for a SIPP

Fatenbread

I'm in the process of changing jobs and moving from an occupational MPP (defined contribution) scheme to a personal pension into which my new employer will pay 10% of my gross salary per month (I have about £20k of existing assets to transfer from my existing pension).

I am intending to open a SIPP with the lowest possible management and trading charges. Looking at Hargreaves Lansdowne at present, but open to other suggestions.

However what I can't seem to find is a fund which invests in / tracks a given market (FTSE 250 or whatever) without charging usurious annual management fees / making a spread on bid and ask prices, for what is basically a job that a computer can do.

All of the funds I have found in searches of HL's site seem to have AMC's of 1.5% plus, which is fine for an actively managed fund (assuming you think a fund manager is anything more than a horse racing tipster), but when I worked in the States my colleagues all had their 401k's invested in tracker funds with tiny AMCs.

All I want is an equity market return, unmollested by square mile pirates.

Aegis

HSBC's tracker range should be available through H-L, and they have AMCs of 0.25% each.

dunstonh

but when I worked in the States my colleagues all had their 401k's invested in tracker funds with tiny AMCs.

Of course they would. In the US, their taxation hits managed funds harder than trackers. We dont have that differential over here.

What you want to do is fine. Although dont put the whole lot on a FTSE tracker. Thats really bad investing. If you can pick up a SIPP/PPP provider that offers the blackrock trackers then they are your best bet. Lower TERs than HSBC & L&G and a wider range (including emerging markets).

Fatenbread

dunstonh wrote: »

Of course they would. In the US, their taxation hits managed funds harder than trackers. We dont have that differential over here.

What you want to do is fine. Although dont put the whole lot on a FTSE tracker. Thats really bad investing. If you can pick up a SIPP/PPP provider that offers the blackrock trackers then they are your best bet. Lower TERs than HSBC & L&G and a wider range (including emerging markets).

Thanks for your reply. A couple of questions if I may:

1) Is the H&L SIPP wrapper any use, or are there other low cost providers that are cheaper or better for what I have in mind?

2) Your comment on the FTSE tracker I mentioned (which I was using solely as an illustration) - Do you mean that this is bad investing because it would concentrate the investment in too small an area (large cap UK PLCs), or because you think tracker funds are a bad idea? I agree that the perfect tracker fund would cover a greater range of different sized companies globally, and this is what I'm looking for.

3) All of the Blackrock funds that I can see through the HL website have AMC's of 1.5% and up. Am I missing something? Would there be a differential between the quoted AMC and the actual TER with the low AMC tracker funds I am considering (ie are there other charges not included in the AMC)?

Thanks


PS, My point on US 401ks was that my colleagues had low AMC's (0.2%) on their tracker funds. While the US tax regime would have an impact on which funds my colleagues invested in, I don't see why it should make managed fund charges ten times higher than trackers.

dunstonh

1) Is the H&L SIPP wrapper any use, or are there other low cost providers that are cheaper or better for what I have in mind?

its ok for the moment. It will of course cost more after 2012 when platforms have to move to explicit charging. However, for the HSBC funds its fine.

2) Your comment on the FTSE tracker I mentioned (which I was using solely as an illustration) - Do you mean that this is bad investing because it would concentrate the investment in too small an area (large cap UK PLCs), or because you think tracker funds are a bad idea? I agree that the perfect tracker fund would cover a greater range of different sized companies globally, and this is what I'm looking for.

Investing too heavy in one sector is bad investing as you will lack the diversification. Whilst there is currently a global feel to the FTSE in general, the FTSE100 has very poor diversification. It is also subject to a mature developed economy with an ageing population and infrastructure with high debt. You are putting all your eggs in one basket if you do that. Nothing wrong with trackers but you need to include more to diversify.

3) All of the Blackrock funds that I can see through the HL website have AMC's of 1.5% and up. Am I missing something? Would there be a differential between the quoted AMC and the actual TER with the low AMC tracker funds I am considering (ie are there other charges not included in the AMC)?

HL only offer blackrocks managed funds. Not their trackers. You would need to buy them using the SIPP functionality and not the fund supermarket side.

Fatenbread

OK, we're on the same page throughout. Thank you again for your assistance.

jamesd

Fatenbread, at HL you should look at the HSBC trackers for the lowest cost funds without HL's 0.5% extra fee for funds that don't pay commission.

HL will charge a 0.5% on top of any ETFs you hold so they aren't ideal for that approach. The HSBC funds are cheaper than comparable ETFs anyway.

Fatenbread

jamesd wrote: »

Fatenbread, at HL you should look at the HSBC trackers for the lowest cost funds without HL's 0.5% extra fee for funds that don't pay commission.

HL will charge a 0.5% on top of any ETFs you hold so they aren't ideal for that approach. The HSBC funds are cheaper than comparable ETFs anyway.

Cheers. I've been looking into it further today, and the fixed annual fees on some of the discount brokerages / fund supermarkets have a big impact on the effective TER of the SIPPs and underlying funds I am looking at (I'm basically transferring £20k over from an existing pensiuon and then paying in £750 a month).

Would I be better off in the Skandia CRA fund (assuming I can find an IFA who will set it up for me for a fixed fee, rather than taking a 4.5% up front commission and 0.5% residual commissions...)?

jamesd

Fatenbread, I don't know about the Skandia fund, something that dunstonh or another of the IFAs who post here might know about. Fee based should get you the cheapest ongoing costs from an IFA and from the look of some dunstonh has mentioned the basic trackers can be cheaper than ETFs when it comes to charges, if there happens to be a suitable fund available.

From the look of it you're paying in enough for it to be worth the fee-based approach.

You also strike me as someone who's interested in investments and might in the future want more options, like direct share holding or ETFs, so you might ask whatever IFA you use about options for that if you think that my impression is right. I haven't looked into the charges for the Skandia SIPP, though. That does offer a broader range of investments.

dunstonh

Would I be better off in the Skandia CRA fund (assuming I can find an IFA who will set it up for me for a fixed fee, rather than taking a 4.5% up front commission and 0.5% residual commissions...)?

That would give you access to the Blackrock trackers at 0.2% (and lower TER than HSBC) as they are on the Skandia CRA.

I haven't looked into the charges for the Skandia SIPP, though.

The CRA (collective retirement account) is actually a personal pension, not a SIPP. However, it uses unit trust funds rather than pension funds. It has a £52 a year charge but with no initial charge and the funds are the normal retail AMC. However, the trail can be rebated. You add on what the IFA charges. So, you take a hit initially with the IFA charge but with trail rebated, you are going to be better off than the HL SIPP (on managed funds) within a couple of years on an average sized fund. With trackers it would take longer to breakeven but at least you have a better tracker range and the growth potential of some of those would make up for it.

Fatenbread

That's what I thought. I am aware that the Skandia CRA is a personal pension and not a SIPP, but for the size of my current pot and contributions, the trading charges on most SIPPs make these uneconomic (and I am only interested in investing in tracker ETFs & unit trusts in any case).

What should I expect to be looking at in terms of fees for an IFA to set the Skandia CRA up for me?