Transact Online and wrappers

movilla

Hi,

Does anyone use or know anything about Transact Online? It's a wrapper service that seems to allow online collation of different investments. The IFA I've just started talking to about my various pensions has recommended them but I don't know anything about them or wrappers. Transact's commission is 0.5% and the IFA is also 0.5%

Thanks,
Movilla (aka Martin)

brianrhill

Movilla

There are quite a few wraps/platforms on the market, 25 in fact.

Transact are one of the better ones to my knowledge, they rank 4th overall in an independent rankings table, although the feedback is that it is a bit expensive for most clients (which I take it means those with less than £100k). The platforms provided by insurance co's tend to be at the bottom of the table.

Questions to ask your IFA:

1. Do all of his clients go on Transact?
2. Why Transact and not one of the others?
3. What benefits do you as the customer get compared to if you didn't use Transact?

CannySaver_2

Hi

I'd also ask him if he is a shareholder in Transact or if by him placing business with Transact he gets shares in the business.

A number of platforms / wraps offer, or at least have offered, inducements to IFAs to place business on the platform / wrap, which are not necessarily declared to the client.

There is also at least one network who has partnered with a Wrap to make money off clients which is not declared as transparently as it could be.

The Canny Saver

brianrhill

CannySaver wrote: »

Hi

I'd also ask him if he is a shareholder in Transact or if by him placing business with Transact he gets shares in the business.

A number of platforms / wraps offer, or at least have offered, inducements to IFAs to place business on the platform / wrap, which are not necessarily declared to the client.

There is also at least one network who has partnered with a Wrap to make money off clients which is not declared as transparently as it could be.

The Canny Saver

Good question which, should, be answered in the Client Agreement/Engagement letter.

Which one CannySaver?

dunstonh

Transact's commission is 0.5% and the IFA is also 0.5%

Transact dont work on commission. They work on fee basis. Commissions are rebated (including platform commission and trail commission). So, the fees aer 0.5% for both.

There is also at least one network who has partnered with a Wrap to make money off clients which is not declared as transparently as it could be.

Although that network has not stopped other platforms being used and it negotiated special terms in the process. Just like networks used to do a lot more years ago. I personally have no issues with that as the client benefits by getting lower charges than the standard RRP. I consider it bad when a network (or firm) decides to use one platform for everyone. If they negotiate special terms with multiple and will use multiple then all is good.

movilla

Thanks all. I have a 100K pension pot (with 3 separate pensions) to start, but 70K of that has a 4K exit penalty so I was advised to leave it alone. So I've 30K to start a new fund with. Transact don't seem too bad and the IFA said I didn't have to use them. It just gave more available funds.

jamesd

Transact has a charge of £80 a year for a pension plus 0.5% of the money invested (dropping from 0.55% in 2012). Plus 0.2% for all purchases including the purchase part of an investment switch. The fund prices probably start at about 0.75% annual charge instead of the full retail 1.5% so it's not quite as bad as it seems.

It's worth wondering if you'd really use the extra fund choice. At 0.5% ongoing charge from the IFA for £30,000 invested, without knowing what you're adding each month, it's not too unreasonable for the IFA to favour a platform that makes life easier for the IFA. You may be close to the minimum value that makes sense from a business perspective for the IFA.

Here's a more detailed description I first wrote a month or so ago:

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Transact allows a broad range of investments including funds, shares and investment trusts, as well as non-UK investments like US shares. You should look at their FAQ and then at the live demonstration linked from the top of the page, one option in the demonstration is Information/ Transact documents that will give you access to a lot of documentation about Transact.

It has tiered discounts that can make it cost-effective for larger pension pots. The discount levels depend on total money invested, across pension, ISA and unwrapped investments held there.

There's a charge of 0.2% of all purchases, including the purchase part of a switch. Halved if the total portfolio value is at least a million Pounds, waived if two million. For transactions on a stock exchange, £14.99 per trade, but if multiple clients do the same deal this is split among them all.

There's also an annual charge based on a percentage the total amount of money invested:

First £60,000: 0.55% (£330 at £60,000 invested)
next £120,000: 0.4675% (£330+561=£891 at £180,000 invested)
next £120,000: 0.4125% (£330+561+495=£1386 at £300,000 invested)
the rest: 0.3575%

But where the value has been at least £300,000 for the last six months the charges are instead:

First £600,000: 0.4125% (£1237.50 at £300,000 invested)
next £600,000: 0.22% (total £2557.50 with £1.2 million invested)
the rest: 0.0825% (total £3052.50 with £1.8 million invested)

There's also an annual charge of £80 for pension, £12 for ISA. The 0.55% is reducing to 0.5% from January 2012 and the others will also drop by the same 9.1%. For cash the base charge is .045%, not 0.55%.

One negative is the requirement to hold at least 2% in cash in each type of account, which is wasteful if you want to be fully invested.

Transactions for all customers are normally combined and their order execution policy contains this note:

"Unless we agree otherwise, for Instructions received before 1pm on a Business Day, we place all aggregated purchase Instructions and all aggregated sale Instructions from 2pm until those Instructions have been executed within working hours on the same Business Day."

Since most UK funds have a noon valuation point that would mean a one day delay in all fund deals and might be unacceptable, particularly if you contemplate selling in a dropping market and don't want to be forced to be in the market for an extra day. But I haven't checked whether this does apply to funds. Some places have worse terms than this - the Standard Life pension is particularly bad - others like Hargreaves Lansdown will trade on the same day for instructions given by 8AM.

There is an option to pay an extra £10 fee for an express trade that isn't included in this aggregation.

If you visit the US a lot you might find the prohibition on issuing any instructions while in the US a problem.

It appears that the SIPP requires minimum payments of £100 a month to set it up, which probably won't bother you but might bother someone in a work salary sacrifice scheme who'd lose NI savings by paying this directly to Transact. However they say you can stop payments altogether without penalty. If that doesn't make it paid up and bar additional payments by transfers or lump sums it may not be an issue for others.

Charges are punitive if you don't have an IFA; there's a 0.5% annual extra charge and 3% extra charge per deal levied by Transact in this case.

If you were to use their cash or S&S ISA wrapper there's an option to have their charges taken from a fee payment account instead of from within the ISA. That leaves more money in the ISA wrapper.

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brianrhill

As JamesD pointed out, a wrap can make life alot easier for the IFA. This should then be refelcted in their fees for ongoing servicing. For instance, if they charge 0.50% for non wrap clients, should they charge 0.40% for wrap clients?

More available funds shouldn't be the only reason to go on to a wrap!

I would also suggest that you find out what the IFA expects the date of, what I presume is, a market value adjustment of a with profits pension. Just because there is a penalty, doesn't mean it's not worth moving, particularly as you may well find that the performance is staggeringly poor (hence the MVA) and that zero or negative growth is all your likely to get!

movilla

Sorry for replying back late to this thread but I got the exact charges from the IFA. For transfers they charge 3% and Transact is 0.2% which seems reasonable. However, for ongoing charges Transact will charge 0.5% and the IFA £500 every year. Is that far too high? I don't see any advantage in paying an IFA an annual fee of £500 for advice. Here's exactly what they quoted:

For Transact the initial charges will be:

Ø Our initial cost of advice 3.0% on transferred funds (not including Canada Life)
Ø Transact initial fee 0.2%

Ongoing charges will be:

Ø Transact 0.55% reducing to 0.5% from January
Ø Funds varying charges averaging 0.75%
Ø Our advice fee £500 pa to include charges to manage the Canada Life plan
Ø Canada Life charges that are already in place

The £500 annual cost of advice can be paid directly by yourself as a fee or through Transact from your cash account. If paid through Transact from your pension cash account, it is effectively after you have had tax relief and so is more tax efficient.

dunstonh

However, for ongoing charges Transact will charge 0.5% and the IFA £500 every year. Is that far too high?

No. Its not the cheapest of the platforms. However, you have to factor in the commission rebates that you will get back. So, instead of buying a fund with say a TER of 1.75%, you will get it for 0.75% as the other 1% is rebated. The platform and IFA are then charged explicitly to remove any perception of commission bias. That said, its largely cost neutral (1.75% = 0.75%+0.5%+0.5%)

The £500 annual cost of advice can be paid directly by yourself as a fee or through Transact from your cash account. If paid through Transact from your pension cash account, it is effectively after you have had tax relief and so is more tax efficient.

Correct and a good way of doing it.

Personally, I dont use Transact much at all. Mostly inherited clients who have reasons to stay on there. Its software and servicing is great but I dont like their 0.2% purchase charge and I feel some of the other platforms offer better value and comparable software. its a bit like buying a car. Some will buy BMW, some Audi, some Mercedes. Others will buy Ford or Vauxhall or look for absolute cheapest in a Kia or whatever. None of them are wrong. They go with their preference for the reasons they have. All of them will get them from A to B. Some will have features and options that some feel are important, others will not. With Transact, you are in the quality market. Not the budget market. If that is what you want, then the charges you have been quoted are fair.

jamesd

Those costs seem pretty much in line with what may be expected from a normal IFA seeking around 0.5% of amount in the product as an ongoing servicing charge.