Fund management fees of 1.5% reasonable?

itm2

I manage a large part of my savings via Hargreaves Lansdown, investing in a range of managed funds for the most part. Typical annual management fees are often now set at 1.5% for alot of the funds that I'm interested in. Unfortunately H-L usually don't offer any rebate on the annual fees as far as I know, although they often discount up-front charges.
What do people think of that level of annual fee? - Normal? A bit high? Extortionate?

System

yes, normal.

HL do give you rebates - these vary between funds and appear as "HL annual saving" on the fund factsheet.

For example - the Invesco Perpetual High Income fund has an annual management charge of 1.5% and an annual HL rebate of 0.25%.

Glen_Clark

Enter it into the fund charges calculator and see how much it is over the life of the investment. Then allow for all the other charges - buying selling auditors fees etc
http://www.thisismoney.co.uk/money/investing/article-1633426/Isa-fund-charges-calculator-How-fees-affect-returns.html
:eek:

Then buy a basket of shares yourself like I do and pay nothing

mania112

HL, depending how you look at them, are the countries biggest IFA firm.

So big in fact that you'd struggle to get any financial advice from them(!).

That being said, they've negotiated directly with investment houses to receive a rebate directly. Thus passing on the saving to the consumer who will be offered 'cost free' SIPPs/Bonds.

However, what's not shown is that the AMC's are relatively high. They're high to compensate for the sums of money they're giving to HL.

It's a grey area, and a bit underhanded, in my opinion. RDR is supposed to stop all the hidden charges.... but it wont.

jem16

teepee83 wrote: »

For example - the Invesco Perpetual High Income fund has an annual management charge of 1.5% and an annual HL rebate of 0.25%.

There will be no rebate on holdings ( ie each fund not total holding) of £1000 or less.

dunstonh

mania112 wrote: »

HL, depending how you look at them, are the countries biggest IFA firm.

So big in fact that you'd struggle to get any financial advice from them(!).

That being said, they've negotiated directly with investment houses to receive a rebate directly. Thus passing on the saving to the consumer who will be offered 'cost free' SIPPs/Bonds.

However, what's not shown is that the AMC's are relatively high. They're high to compensate for the sums of money they're giving to HL.

It's a grey area, and a bit underhanded, in my opinion. RDR is supposed to stop all the hidden charges.... but it wont.

I think you need to differentiate between HL the platform and HL the IFA. In platform terms, HL are big but not the biggest. In IFA terms, they are bit but not the biggest. Put the two together and they are still not the biggest (if you include networks as the principle and not the member firms but ignore networks and they must be)

Platforms by their nature negotiate terms with the fund houses to take a cut of the TER (dont talk AMC any more as that is on its way out. Ongoing Charge or TER is the way to look at these things. Especially on pensions as Pension fund AMCs are the TER. So, if you use OEIC/UT then you must also compare TER to the pension AMC).

RDR deals with the advice charge and natural trail commission (on advised products as non-advice can still keep commission). Platform review is about a year late and not likely to come until 2014. That will tidy platforms up and make things a lot cleaner.

BLB53

Typically, around half the annual fee is for the manager for running the fund and half is to cover commissions for intermediaries eg IFAs who advise their clients where to place their investments.

If you don't receive advice, you are still paying this 0.75% fee but instead of it being paid to the IFA, it is pocketed by the fund manager.

Things are starting to change with the introduction of RDR next year and we may well see these annual charges reduced to 1% or less.

This will create more of a level playing field with investment trusts (who have never paid introductory commission). Of course, those who require it will need to pay upfront for advice on investments.

kidmugsy

The high costs of funds is why I prefer Investment Trusts. Except for holding bonds, where (correct me if I'm wrong) the ITs get a lousier tax deal. But I'd rather hold bonds themselves than hold them in a fund, and anyway I suspect that bonds are in a bubble at the mo'.

jem16

BLB53 wrote: »

Typically, around half the annual fee is for the manager for running the fund and half is to cover commissions for intermediaries eg IFAs who advise their clients where to place their investments.

If you don't receive advice, you are still paying this 0.75% fee but instead of it being paid to the IFA, it is pocketed by the fund manager.

Only 0.5% goes to the IFA. The other 0.25% is the platform fee which will still have to be paid if using a platform.

Things are starting to change with the introduction of RDR next year and we may well see these annual charges reduced to 1% or less.

The charges are not really going to be reduced. They are just going to be explicitly charged. Now instead of a 1.5% bundled charge, you will have 0.75% for the fund manager, 0.25% for the platform and 0.5% for the IFA if advice is required. Adds up to the same thing.

Of course, those who require it will need to pay upfront for advice on investments.

Not necessarily. The advice fee can still be paid from the product.

jem16

kidmugsy wrote: »

The high costs of funds is why I prefer Investment Trusts.

That's more down to the fact that most funds are bundled and Investment Trusts are unbundled as far as charges are concerned.

Both bought in the same way would work out the same cost with, in some cases, the IT being dearer.

dunstonh

kidmugsy wrote: »

The high costs of funds is why I prefer Investment Trusts. Except for holding bonds, where (correct me if I'm wrong) the ITs get a lousier tax deal. But I'd rather hold bonds themselves than hold them in a fund, and anyway I suspect that bonds are in a bubble at the mo'.

Although on a like for like basis, ITs tend to have a higher TER. Just look at the clean priced UT/OEICs where a comparable IT exists. Typically, the UT/OEIC is cheaper. Its only when you compare the bundled share class of an UT/OEIC against the unbundled IT that you see a difference.

Of course, those who require it will need to pay upfront for advice on investments.

Most investments have been explicitly charged for the best part of a decade now. i.e. 3% was a 3% initial charge.