Investment Charges & Switch Fees

Bluebell_Mel

Hi


I'm new to investing having inherited money from my parents. I decided to use the financial advisor my father used for almost 20 years and am in the process of setting this up. I had given them to go ahead to do an investment review and the fees agreed were


0.75% Annual Advisor Fee
1.00% Agreed Initial Charge (research & analysis) with minimum charge of £1,000
1.00% Ongoing services charge (of assets under management) with minimum charge of £1,000


My sister was investing a lower amount but had an agreed 'switch fee' of 1.00%. Can someone explain this to me?


They had said they would treat us exactly the same but the letter of engagement is again missing this and I am about to raise this with them, but would like to understand it better?


Is there anything else I need to consider?


Thanks

jimjames

You haven't said amounts which will determine if good or not. £1000 fee on £5000 investment would be a very high amount for example.

Bluebell_Mel

Hi Jimjames, the investment value is £314k, but I'm also trying to understand the switch fee charge.

bigadaj

Switch fee isn't a habitually used investment term, it could refer to different things but sounds like a sum for changing investments, which would make me wary of the advisor churning the portfolio in order to earn such fees.

The initial charge doesn't sound unreasonable, though on that size of portfolio is still a substantial sum.

The adviser fee and ongoing services charge sound like double billing, these combined shouldn't be more than 1%. There will be product fees in addition to the advisor fees of course.

Investing isn't really that difficult, and managing this yourself with some education would save substantial sums, £3k+ per year is a good return on your time.

george4064

I agree with bigadaj.

Give DIY investing a go, and save yourself all those fees. You can get a 'premium' platform like Hargreaves Lansdown and only pay 0.45% annual charge on your portfolio.

They have ready made portfolios which you 'copy' for free, with a selection of different investment styles (adventurous, investing for income, cautious, etc...)

Bluebell_Mel

As I understand it was for my sisters ISA pot. I don't have one other than them recommending I put my 2015-16 ISA allowance into a stocks and shares ISA. I have only 3 years worth of cash ISA's behind me. Thinking probably that this doesn't really apply to me now.

Just reading the bumf and the ongoing services says

COST OF ONGOING SERVICES
Our ongoing fees are shown below

1% of assets under management, including the cost of all investment switches and re-alignment of assets - but does not include further financial planning advice, which would be subject to an initial charge as set out above (see my original post for the cost of initial services which is tiered depending on value). These arrangements prevail unless otherwise agreed.

The above fees are subject to a minimum charge of £1000 pa

I'm now thinking that the ONGOING SERVICES charge of 1% has been reduced to 0.75%

The client declaration says

Agreed Initial Charge is 1%
Annual Advisor fee is 0.75%

Am I still working along the right lines?

I do see both your points about better in our pockets than theirs but I don't in any way feel confident about handling it myself and yes that £3000 is bloody hard work to earn but I'm hoping that the investments will pay for it and that the money will work for itself. I know dad didn't suffer fools and he used to keep the guy on his toes. I am the same but as I'm learning and this is new to me all help and advice is gratefully received

dunstonh

That is 1% initial and 0.75% ongoing.

I do see both your points about better in our pockets than theirs but I don't in any way feel confident about handling it myself and yes that £3000 is bloody hard work to earn but I'm hoping that the investments will pay for it and that the money will work for itself.

DIY will often be cheaper. Just like anything you do in life. However, if you get it wrong it can end up being expensive. Paying someone to do it for you costs more as they have to be paid. However, you then get consumer protection and its likely to be right. So, as long as the fees are reasonable and you dont want to DIY there is nothing wrong with using an IFA. (make sure its an IFA or whole of market adviser and not a restricted adviser with a limited panel. No point paying someone who cannot use the whole market).

JohnRo

There's nothing wrong, imo, with employing an IFA for the bulk of it and having a go with say £50K yourself, then as you learn, become familiar and get more confident with DIY investing , you can put the IFA investments under new management as you see fit.

If you're sensible about it, DIY is nothing to be afraid of.

puk999

I'd read a book such as Smarter Investing. and do other research before proceeding with IFA. Then you can decide if you're up to DIY which IMHO isn't that difficult. If you're not, then you can challenge the IFA on their decisions with your improved investment knowledge.