Fees

jamesd

SnowMan wrote: »

The typical 0.5% initial charge that you pay with Vanguard as I understand it doesn't actually go the managers but goes into the fund itself.

The Vanguard funds don't typically have a initial 0.5% charge. Only the funds with significant UK holdings, which have SDRT to pay.

Many of their other funds have an initial dilution levy charge from 0.1% to 0.75% that is paid into the fund. Some of their ETFs have a dilution levy that is charged on sale.

gadgetmind

Perelandra wrote: »

I don't suppose there a nice handy comparison table anywhere is there?

Monevator found some *but* they can't be used to go too far back because of the "Vanguard effect". Before they came on the scene, many trackers available in the UK charged fairly high fees for trackers, hence you'll see higher tracking error. Post-Vanguard, fees dropped.

Lokolo

Perelandra wrote: »

Ok... so for Trackers, if I compare the return from the tracker over a (reasonable) period of time, and compare that with the return of the index, and (if needed) adjust for the initial dilution levy, would this give me an indication of the total costs of running that tracker- TER, tradings costs, 'normal' tracking error etc? I don't suppose there a nice handy comparison table anywhere is there?

Would need to adjust for platform charges as well, if applicable...

Presumably this isn't so easy to do for managed funds, to understand what the real cost of running the fund is.

I think it would give a close approximation yes but don't forget a tracker will hold some cash which obviously doesn't follow the index, so this will come back in the tracking error.

And for active funds it would be pretty difficult, they buy and sell between IBs who name the price of their stock. It's not like a broker where they charge £12.50 to trade. HSBC will offer 10 million shares of Y at X price, the cost would be included in this. So you could work out the price of the stock, compare it to the trade price and work it out from there but the trades take quite a bit of time to process, so do you compare the cost at the end of the trade? At the beginning when you are trying to haggle a deal? But it could be done, but then implementing the systems would just had more cost onto the end......

Perelandra

gadgetmind wrote: »

Monevator found some *but* they can't be used to go too far back because of the "Vanguard effect". Before they came on the scene, many trackers available in the UK charged fairly high fees for trackers, hence you'll see higher tracking error. Post-Vanguard, fees dropped.

Never easy, is it...

I think I'll put it all on black and cross my fingers.

Perelandra

Lokolo wrote: »

I think it would give a close approximation yes but don't forget a tracker will hold some cash which obviously doesn't follow the index, so this will come back in the tracking error.
.

I think I would just regard the holding of cash as another cost (an opportunity one) of the tracker, so as long as that's effectively being picked u in the tracking error, then that's ok with me.

Glen_Clark

Here is a useful calculator to show the effect of fees. link: http://www.thisismoney.co.uk/money/investing/article-1633426/Isa-fund-charges-calculator-How-fees-affect-returns.html
As an example, say you put £1,000 a month into a pension for 45 years.
2.25% charge for the fund manager doesn't sound very much.
But its actually more than half of your fund.
The fund manager will be getting more out of it than you are, without putting any money in!

dunstonh

2.25% charge for the fund manager doesn't sound very much.

Yes it does. It is more than double the benchmark which has been 1.0% since 2001.

However, the calculator is highly flawed and dagerous in the wrong hands. For example you can cannot compare the value in 45 years with the spending power of today. So taking a figure from 45 years time and then pretending it has todays spending power is misleading.

Also, you get nothing for free. Why not have a calculator to see how much you could save over 45 years if you didnt have to buy your food from a supermarket? Every option has costs. Even savings accounts where the interest margin is typically around 1.3%.

gadgetmind

dunstonh wrote: »

It is more than double the benchmark which has been 1.0% since 2001.

I wish someone had told my (now history!) IFA as I was steered into 5% up-front and well over 2% pa.

Every option has costs.

True, and I'm now using a sub 0.5% pa option. The major cost is that I've had to learn to DIY, which was something I'd rather have avoided.

Perelandra

gadgetmind wrote: »

I wish someone had told my (now history!) IFA as I was steered into 5% up-front and well over 2% pa.



True, and I'm now using a sub 0.5% pa option. The major cost is that I've had to learn to DIY, which was something I'd rather have avoided.

5% up-front and 1% per quarter here...

Glen_Clark

dunstonh wrote: »

However, the calculator is highly flawed and dagerous in the wrong hands. For example you can cannot compare the value in 45 years with the spending power of today. So taking a figure from 45 years time and then pretending it has todays spending power is misleading.

Also, you get nothing for free. Why not have a calculator to see how much you could save over 45 years if you didnt have to buy your food from a supermarket? Every option has costs. Even savings accounts where the interest margin is typically around 1.3%.

I see your assertion about benchmark fees has already been dealt with so I will pass on that.

The point is that the fund manager would take more out of it than the punter who put all the money in. To talk about the 'spending power' of that money is just a distraction.

Savings accounts have a margin to allow for bad debts. Fund managers do not. They trouser their fees come what may.

As for the suggestion that we need a fund manager as much as we need food from a supermarket... words fail me