Stocks and Shares ISA from IFA

Deru

Hi

I have a Skandia Multifund (stocks & shares ISA) set up by my IFA.

I've worked out that I've contributed:

£4950 so far.

Charges are 4.5% initial charge for each deposit and around £50 per year Investor Charge.

In total, the charges have amounted to: £325.49. I also pay my IFA £25 per month, (dropped down from £50 per month)

Are the charges normal? I make it 7.1% in charges I'm paying if I'm not mistaken.

Last valuation 4 months ago, I got around 5% returns. Don't know how much it's currently worth. I know the returns can vary based on trends and 5% is good but aren't the charges are bit high? If the market improves and I get even 7% returns, I'd still just be breaking even. Even 10%, after fees, only leaves me with 3%, which I'm currently getting with my Cash ISA.

I believe some of the charges are paid to the IFA so it's a combo of fees to Skandia and them. So if I wanted to avoid these fees, can I transfer it to my cash ISA?

Or does it have to be another Stocks / Shares ISA? OR even just withdraw it as cash (I'd lose my tax free wrapper)

I have over £8K in Cash ISA already. What's the best way forward in your opinion? Thank you! Long post...

smallfry27

The average charges through an IFA are 3% initial plus 0.5% p.a. The 0.5% may come out of the Annual Management Charge within the fund, depends on how your IFA works..

You can't move a S&S ISA to a cash ISA (though you can do it other way round).

The cheapest way is through a fund supermarket/discount broker such as Best Invest, Hargreaves Lansdown, Cavendish Online (see Candid Money web site). However you then have to choose your own funds. Some companies let you retain ownership of the shares and just move them to a new platform (called in specie). However Skandia, I think, are one of the few that will insist that you sell them and transfer in cash.

You might just be able to find a cheaper IFA, and give them authority to manage your existing Skandia funds. Or try negotiating.

Deru

Hi,

Thanks for the reply. I might sell them and transfer to cash for simplicity's sake. I still have plenty of Cash ISA allowance and getting 3% interest. Any reason why I shouldn't besides losing the tax wrapper for already subscribed funds?

Or is it easy to do the supermarket/discount broker? What are the fees like? Guessing it's more risk?

smallfry27

The main problem with holding in cash is that there are few accounts that are keeping up with inflation. You could go for a 5 year fixed rate, or wait and see if Index-linked National Savings come back (some people think they might in April).

I'm preparing to move my S&S ISA. Has taken me ages to do research, read a lot of books (especially Tim Hale 'Smarter Investing') and looked at a lot of very opposing opinions on this site. But a lot of people do it, especially for small amounts. Like anything I guess you have to learn, and its better to start small and minimise risk. I'm starting with £4k 'on my own', and give it a few months before I transfer the ISA from IFA.

I've only investigated fees on BestInvest and Hargreaves Lansdown. Many of their funds are available at 0% initial charge, and < 1% p.a. But depends what you want. If you don't want to do the research, you could try one of their ready-made portfolios, and pay a slightly higher charge.

Deru

Sounds very complex. I don't mind doing research but not much time at the moment and would like to get the money from the IFA as soon as possible.

I could do 5 year bond as you say. Thanks very much.

dunstonh

The average charges through an IFA are 3% initial plus 0.5% p.a. The 0.5% may come out of the Annual Management Charge within the fund, depends on how your IFA works..

Actually, the average was recorded by the FSA over a number of 6 month periods and it came out at 1.8% plus 0.5%. The 3% figure is the typical maximum. Skandia have no initial charges on funds and allow the IFA to pick a rate up to 4.5%. What you pay is what you agree with your IFA.

I think the problem in this case is the size of the fund is low. So, the ability to discount isn't there. The larger the pot, the cheaper it gets basically.

Sounds very complex. I don't mind doing research but not much time at the moment and would like to get the money from the IFA as soon as possible.

I could do 5 year bond as you say. Thanks very much.

Despite the charges being at the higher end, the long term returns are still likely to be higher than a 5 year bond. Remember that the 5 year bond has charges too. You just dont see them as there is currently no requirement for charges to be disclosed on savings. Its hidden.

I like the Skandia platform. It has a good range of funds and can be one of the lowest cost platforms out there. However, it is not good for small valuations as that is not their target market.

Even 10%, after fees, only leaves me with 3%

10% after fees would give you 10%.

Deru

Hi dunstonh

10% after fees would give you 10%.

I meant 10% and then deducting the 7% I'm paying in charges?

I like the Skandia platform. It has a good range of funds and can be one of the lowest cost platforms out there. However, it is not good for small valuations as that is not their target market.

Me too. That's how I got sold it. How big does the pot need to get though? Wouldn't the charges increase too? Even the £50 a year is increasing each year albeit not as much as the charge from the 4.5% if I increase my contributions. (if that made sense?)

I've posed the question to my IFA to see what he comes back with. I'd be interested in what other think too.

Thank you for your time.

dunstonh

How big does the pot need to get though?

I tend to find it doesnt become cost effective until around £25k plus (all assets on platform - not per account).

Even the £50 a year is increasing each year albeit not as much as the charge from the 4.5% if I increase my contributions. (if that made sense?)

That charge only goes up by inflation each year. People with £2 million on their still pay the £52.32.

jimjames

dunstonh wrote: »

Remember that the 5 year bond has charges too. You just dont see them as there is currently no requirement for charges to be disclosed on savings. Its hidden.
.

I think thats slighlty misleading. Say the 5 year bond from the bank pays 5%, that is what you get as your return. The bank may lend the money out again at 7% and are thus making 2% to cover their costs.

The fact is that you still get the 5% that they promised you so there are no hidden charges.

jimjames

Deru wrote: »

Hi
I believe some of the charges are paid to the IFA so it's a combo of fees to Skandia and them. So if I wanted to avoid these fees, can I transfer it to my cash ISA?

Or does it have to be another Stocks / Shares ISA? OR even just withdraw it as cash (I'd lose my tax free wrapper)

I have over £8K in Cash ISA already. What's the best way forward in your opinion? Thank you! Long post...

You don't say how long you have been contributing to get to that amount but £25 per month sounds a lot to be paying in charges. If it is several years then that would mean monthly payments of £200 or so. Paying £25 out of that as commission sounds extortionate. If it is shorter then it is difficult to judge returns on short time periods. You can certainly get much better deals that will improve your returns but without the advice.

You could transfer the S&S ISA (as a S&S ISA) to another provider such as Hargreaves Lansdown. You still have a wide choice of funds but for most of them you will get the inital charge removed and for many you get part of the annual charge rebated as well. Your 10% may be reduced by 1.5% annual charge but it is still above the 3% return now.

You cannot transfer a S&S ISA to cash ISA.

Deru

Hi Jim,

Slight misunderstanding. The £25 per month charge is the fee I'm paying to the IFA each month. Not fees/charges for this ISA. This product, I'm paying 4.5% to the IFA per contribution (i.e. 4.5% of £250 each month) and around £50 per year.

I've been paying in money for 2 years. Started off at £100 but increased to £150 and then increased to £250 in the 2nd year.


I have actually received a response from my IFA. He did clarify a few things. Fees are only for money going in so the money already in won't incur any further fees. Also, if I stopped paying in money, the existing money will continue to work for me, there'd be no other fees besides the annual £50. Now I feel a bit better about this product.

I tend to find it doesnt become cost effective until around £25k plus (all assets on platform - not per account).

25K! Considering I'm only paying £250 per month, I'm miles away.

I have 8.5K in a cash ISA. Was considering maybe transferring 3K into the Skandia S&S to speed things along.

I don't exactly earn that much (less than 20K pa). Is this product really suitable for someone that's drip feeding rather than paying in 10K+ lump sums? Is it suitable for someone with my level of income?

He did say this was a 5 year thing in order to see good returns but he also said that each contribution will only see good returns after around 5 years but as I'm drip feeding, each £250 will need to wait another 5 years if it's recently contributed. So 2 years in, the £250 I pay in tomorrow will need to wait another 5 years to be worthwhile, which makes me think lump sum is the only good way to go unless I'm really really patient. (did that make sense?)

If that's the case, wouldn't I be better off transferring 3K into the S&S ISA? I'm guessing transfers incur the same 4.5% charge.

I'm just thinking how much I'd need to invest and how long before I even cover all the fees I've already paid plus the ongoing £25 per month and £50 per year at my level of investment.

Oh and thanks for your time, dunstonh, jim. Much appreciated.