AJ Bell / HL ISAs - no payment mechanism but to force sell

edited 21 June 2018 at 11:23PM in ISAs & Tax-free Savings
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xnoxxnoxxnoxxnox Forumite
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edited 21 June 2018 at 11:23PM in ISAs & Tax-free Savings
I have a trading account, without ISA wrapper with Vanguard Investor, and they allow paying account fees using direct debit, rather than selling your investments.

I am thinking into opening a LISA with either AJ Bell or HL. But I am now very concerned. The only way to pay for fees is from within the LISA account itself. And they will sell investments if there is not enough cash (incurring more trading fees to do that). Well the easy solution is well to just top up cash in the LISA account....

... but one may have used up all of the LISA allowance already, thus topping it up would trigger even more expensive ISA repair.

... or one may not be allowed to make new top ups, if one has moved out of the UK and becomes a non-uk taxpayer for a year. NB! in such cases one is allowed to keep the ISAs, just not make any new subscriptions into them.

Do providers must accept debit card / cheque / direct debit payments to cover fees in such cases? Do AJ Bell / HL accept that?

I'm worried, cause who knows where I might end up over the next 30 years. And I don't want AJ Bell to sneakily sell off, all of my funds, bit by bit, every quarter until there is none left. Is that how they really make money in the end?

And it's not like one can plan the fees for the 30 years ahead since it's based on the value of the funds every quarter and the fee itself can change.
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  • edited 22 June 2018 at 12:13AM
    kidmugsykidmugsy Forumite
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    edited 22 June 2018 at 12:13AM
    Are you suggesting that the dividends from your investments won't be big enough to cover the charges?
    Free the dunston one next time too.
  • eskbankereskbanker Forumite
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    xnoxxnox wrote: »
    Do providers must accept debit card / cheque / direct debit payments to cover fees in such cases? Do AJ Bell / HL accept that?
    AJ Bell say:
    All charges will be deducted from your ISA.
    HL give a choice of using your GIA instead of using up valuable ISA money:
    Paying charges from a different account

    If you’d like to always pay your ISA charges from cash in your HL Fund and Share Account, it’s easy to set this up online.
    1. Log in and go to the 'Account Settings' section of your ISA
    2. Select the ‘Fee and Minimum Cash Balance’ tab
    3. Click on 'Fee collection options' and follow the instructions
    as do II (effectively):
    Which account will the quarterly payment be taken from? Or can I choose which account?

    You can’t choose the account your payment is taken from. We will collect the fee in the following sequence, collecting from trading account(s) first to help protect your tax wrappers:-
    1. Linked Bank Account (Direct Debit) if set up. Click here to find out more.
    2. Trading Account
    3. Regular Investment Account
    4. ISA
    5. Regular Investment ISA
    Following this if we be unable to take the payment your Trading Account will be placed in a negative balance.
  • xnoxxnoxxnoxxnox Forumite
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    Re: dividends
    There would be no dividends paid to the account as cash, if one holds accumulation unit type funds. Instead they effectively self-reinvest, as the market value of the existing holdings increases, without cash being paid out / no new deal executed / no dealing charge. Makes sense for ISA - since there is no difference in tax liability for all the types of gains: interest income , dividend income, capital gains and losses.

    Even if one plans for this and holds some income unit types, dividends are not guaranteed. And over 30 year period one would have to monitor and rebalance if income generating things don't do as well as accumulation things to cover all the account fees.
  • AlexlandAlexland Forumite
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    HL also have an option (which is off by default...) where they email a warning before selling down units to pay fees.

    AJ Bell charge nearly £30 if this happens so best avoided if likely.

    Alex
  • edited 22 June 2018 at 7:14AM
    bowlhead99bowlhead99 Forumite
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    edited 22 June 2018 at 7:14AM
    I'm worried, cause who knows where I might end up over the next 30 years. And I don't want AJ Bell to sneakily sell off, all of my funds, bit by bit, every quarter until there is none left. Is that how they really make money in the end?
    How they make money is by charging fees; it's how they can afford to run their offices and infrastructure and compliance cost and pay for employees etc.

    Most people just pay the standard fees rates. However, some people will not have any cash in their account to cover the fees and if the platform provider can't take money out of your account they will have to do some extra work to sell your investments and get money into your account to do so; they will charge you a premium fee for that service to discourage you from making them do it, because they would much prefer to just take the money that you owe them out of the money that's sitting in your cash account with them.

    If you don't leave them any money for the service they provide, they will have to sell off some of your portfolio bit by bit, but I wouldn't call it 'sneakily'. If you fail to pay them they have to sell a (small part of) your portfolio to raise funds so that they can be paid. You know this, so you should try to avoid it. Either by leaving sufficient cash behind in the account when you make new investments, or by having some income-producing investments.
    xnoxxnox wrote: »

    Even if one plans for this and holds some income unit types, dividends are not guaranteed.
    True, but you only need to be generating about a quarter of a percent of your overall asset value in dividends to cover the fees (at AJ Bell; higher percentage at HL). So it is not a particularly high hurdle to reach.

    You can just leave a little bit of money left in your account when you buy the investments to cover the fees in the early months (before those new investments start to generate income) and then let the natural income cover it. Or, stick to accumulation units but hold back more cash.

    You are right, over the course of 30 years time you might not be contributing to the account every year; so you just need to either have some income being generated in the account, or manually log in from time to time to sell down a small amount of investments to create cash. If you do the 'sell down investments' route, you don't need to do it every single quarter, you could just do it for an estimated amount to cover a year or more's fees. Doing it yourself at the time and amounts you want, is better than having them do it whenever they need to and charging a premium fee.


    For the moment, while you are paying in new subscriptions to the LISA product annually (to get bonuses) it may be easier to just hold some of that money back for fees. You're right that you don't know the exact level of fees because it depends on the asset values, but you can usually assume your portfolio isn't going to double in value over the course of a year.

    Or you could use some dividend-paying holdings. If the dividends are more than you need, you can just reinvest the 'spare' money when you do your next investment at the time of doing your next subscription into the account (or next receipt of bonus money).



    So in the situation where you have ongoing new money being invested, it is not really a problem whether you choose to hold back a small amount of money for initial fees and generate income that needs to be reinvested, or hold back a larger amount of money to keep you going until the next subscription.
    And over 30 year period one would have to monitor and rebalance if income generating things don't do as well as accumulation things to cover all the account fees.
    Presumably over the 30 year period whether you use inc funds or acc funds, you will want to monitor and rebalance your investments from time to time anyway; for example if your investments in fund A don't do as well as fund B in a particular year or two period, causing your holdings to end up in different proportions from what you are comfortable with and what you intend to hold (e.g. ratio of emerging market equities vs developed markets, equities vs bonds vs property, etc)

    If you were only intending to use one fund anyway, you could just hold the acc version of that one fund alongside a smaller amount of the inc version of the same fund. If the dividends were (e.g.) 1.5% a year and you chose to buy two parts acc fund to one part inc fund, your dividend income would be about 0.5% which should be comfortably above the 0.25% amount you need for fees.
  • xnoxxnoxxnoxxnox Forumite
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    Alexland wrote: »
    HL also have an option (which is off by default...) where they email a warning before selling down units to pay fees.

    AJ Bell charge nearly £30 if this happens so best avoided if likely.

    Alex

    Just checked AJ Bell and others too, see below. In brackets I mention how often the account fees are charged, to estimate how often forced sale could be triggered. Oh I so wish Vanguard would start offering LISA.

    Offer LISA, and other ISAs:

    AJ Bell YouInvest - Disinvestment, if we need to sell some of your holdings to cover charges - £29.95 per holding (fees payable quaterly)

    HL - Automated sales to cover charges (selling fund units or shares to cover fees) - £1.50 per stock per month (fees payable monthly)

    Do not offer LISA yet, but do offer other ISAs:

    II - Sell out fee due to non-payment, Plus trading commission if applicable. Charged if you have insufficient cash and we sell assets to make settlement. - £40.00 (fees payable quaterly, but account fee is actually fixed at 90GBP per year, so easy to plan)

    Vanguard - full costs and charges pdf doesn't mention any fees for forced sell
  • grey_gym_sockgrey_gym_sock Forumite
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    HL's help pages say that, if they need to sell investments to cover charges, they will sell more than what it is needed to cover immediate charges, with the aim of leaving enough cash to cover some future charges - i'm not sure for quite how long, but i'd guess for a few months? what they sell is part of your largest holding in a fund, so it's unlikely they'd need to make more than a single sale at a time. so i'd think that, at worst, you'd be looking at paying £1.50 several times per year.

    or you can avoid that by selling a bit of a fund yourself before they do. HL don't charge for that.

    i don't know how much cash AJ Bell will try to raise if they need to sell investments to cover charges.

    in any case, you can avoid AJ Bell charging £29.95 to raise cash by selling part of a fund yourself first, for which they do charge, but only £1.50.
  • AlexlandAlexland Forumite
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    The best thing to do is to be responsible and plan your money such that this situation doesn't occur.
  • ValiantSonValiantSon
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    I agree that it is a very poor arrangement. It would be much better if they either collected fees by direct debit, or issued a bill, which you would then pay by debit card/credit card/bank transfer. Vanguard are streets ahead in terms of having a sensible approach to paying fees.
  • masonicmasonic Forumite
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    ValiantSon wrote: »
    I agree that it is a very poor arrangement. It would be much better if they either collected fees by direct debit, or issued a bill, which you would then pay by debit card/credit card/bank transfer. Vanguard are streets ahead in terms of having a sensible approach to paying fees.
    What does Vanguard offer that the others don't?
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