Income from investment and unbundled charging

phuket

Hi

This may be one for the IFA's but am interested in what everyone has to say.

I am about to make an investment for a regular income. I am looking at doing this through an IFA on a platform which has an unbundled charging structure and charges seperate monthly platform and adviser fees.

I had planned to withdraw all the dividend income from my investment to cover living expenses but now realise I will have quite significant monthly fees to pay which will need to be taken out of the investment income.

My question is, before RDR and under the old bundled charging structure where you just paid a AMC which was taken from the fund, I would have been able to withdraw all the dividend income. Presumably with the higher AMC I would have found that my investment growth was lower but my income was higher.

Is this correct? How are income investors managing the situation if they have no other income to cover charges?

As far as I can see the only options are to have less income or to keep selling units to cover the charges which seems like a very bad idea.

Thanks

grey_gym_sock

selling units may be fine.

it does actually come to the same thing as the old system, because when the charges were part of the AMC, either

(a) the fund charged the AMC against income, so the higher AMC did reduce the available income, and you'd have had to sell units if you wanted more income, or

(b) the fund charged the AMC against capital, which is similar to selling units yourself, or

(c) a mixture of (a) and (b): the fund charged AMC partly against income, partly against capital.

Lokolo

grey_gym_sock wrote: »

selling units may be fine.

it does actually come to the same thing as the old system*

Assuming the charges are the same. (just to make it clear!)

phuket

selling units may be fine.

surely if you have income units and are selling units continuously your capital investment will gradually be eroded as you loose the ability to make up gains when the market drops?

(a) the fund charged the AMC against income, so the higher AMC did reduce the available income ...

So if the fund manager hasn't issued a new clean share class the income policy is likely to stay the same and with the new charges your overall income is likely to be less?

grey_gym_sock

if it's an unclean share class, then (providing the charges are the same as they would be with a clean share class), it will have less income than a clean share class, but will pay a rebate which makes up the difference - assuming the platform used is unbundled, which i think it has to be now for an IFA to use it.

selling units will reduce your capital return. so will buying units which charge costs against capital. this may be acceptable, though. if you want to spend more than the "natural" income, that's what you have to do. and the "natural" income should mean after deducting charges.