SIPP - cheaper with clean funds?

okydoky

Started a SIPP last year by transferring various pensions and bought into a dozen funds, mainly equity based, which have performed well.

Chose to do nothing at end of last year when I received stuff on RDR review as quick phone call with Fidelity(where I hold S and S ISAs) suggested this might be cost neutral.

However in the middle of setting up drawdown on my SIPP and see from KIID's that most clean funds have considerably lower charges e.g. One of my funds has fund charge of 1.6% and AMC of 1.5%, whereas clean fund equivalent is only 0.75%!

Does this really mean I'm paying 2.3% more in charges than I need to?

Can I move to clean funds free of charge?

Or am I missing something??

jem16

okydoky wrote: »

Started a SIPP last year by transferring various pensions and bought into a dozen funds, mainly equity based, which have performed well.

Chose to do nothing at end of last year when I received stuff on RDR review as quick phone call with Fidelity(where I hold S and S ISAs) suggested this might be cost neutral.

However in the middle of setting up drawdown on my SIPP and see from KIID's that most clean funds have considerably lower charges e.g. One of my funds has fund charge of 1.6% and AMC of 1.5%, whereas clean fund equivalent is only 0.75%!

Does this really mean I'm paying 2.3% more in charges than I need to?

First of all your charges don't come about by adding the charge of each fund together so no you're not paying 2.3% extra in charges.

Secondly the bundled AMC includes the platform charge plus adviser's charge. You will still have to add the platform charge to the clean 0.75%.

We're you receiving any fund rebates and if so how much on each fund?

Can I move to clean funds free of charge?

Quite possibly but you would need to check with the provider.

greenglide

If you are with Fidelity then there is normally no charge for moving to clean classes (fund switches are normally free) but you will be out of market for a couple of days (you may make a small profit / loss out of this). If the fund is dual price (there is a buy / sell spread) then you will suffer from this so you generally may not wish to do the switch. Does Fidelity not have a guide to this?

When the drop dead date for switching arrives in a couple of years I assume they will have to switch automatically potentially without cost?

jamesd

You're missing that you are double counting the fund charges. It's not 1.6% and 1.5%, it's 1.5% or 1.6% depending on what is included in the number.

You'll probably find that you have to pay a platform charge on top of the clean fund charge if you switch to clean funds. That will vary depending on the platform, perhaps 0.5%. This still probably makes the clean option better for most funds.

There's normally no charge to convert from commission-paying to clean funds. It can normally be done without selling and buying back. Just ask how to convert and your platform will tell you what you have to do there to get it done. The conversion process avoids the issue of being out of the market. However, not all platforms offer conversion and I haven't checked whether Fidelity is one of the ones that doesn't.

greenglide

Fidelity doesn't offer conversion at present - you have to do a switch which does take you out of market.

okydoky

Ok thanks, my ISA's are Fidelity, my SIPP is with You Invest/A J Bell.

They do seem to offer a switching arrangement so will need to check this out.

Still confused about charges! Why do they show 2 different charges on KIID's? In my example 1.6% and separate AMC of 1.5%! So if it's not both of these charges is one included within the other? In other words the higher of the two applies?
Sorry to be pedantic but this is rather confusing in my view.

jem16

okydoky wrote: »

Still confused about charges! Why do they show 2 different charges on KIID's? In my example 1.6% and separate AMC of 1.5%! So if it's not both of these charges is one included within the other? In other words the higher of the two applies?
Sorry to be pedantic but this is rather confusing in my view.

The KIID will show the ongoing charges for the fund - used to be known as the TER. The AMC of a fund is only part of its costs, the ongoing charges represent the total expenses of the fund. This explanation might help;

http://monevator.com/the-ongoing-charge/


So yes the fund charge is 1.6% in the example you quote.

However do remember to take any fund rebates into account when you consider what to do.

mania112

Example:

Clean = 1% for the investment, 0.25% for the provider, 0.50% for the adviser

Non-clean/commission/dirty/old = 1.75% for the investment (and rebates paid to relevant parties).

- There is not always a noticeable cost difference. The aim of RDR is primarily for transparency.

- Fund factsheets showing different costs can be either because they haven't been updated to reflect clean share costs and also because they show default prices before provider-specific discounts. The whole thing is a minefield and the road to recovery is ongoing.