Investing directly with fund companies?

[Deleted User]

Alexland wrote: »

At the risk of being even more pedantic the OP is should make at least 0.1% interest from HL on the cash balance run to pay the fees.

https://www.hl.co.uk/charges-and-interest-rates

Alex

And for the same reason, the OP should make 0.25% interest on cash held with Vanguard

pafpcg

bowlhead99 wrote: »

Going direct is not always cheaper..

Bowlhead has already described why there are good reasons why not to go direct. Let me give you a real-life case:

Twenty-five years ago, my partner & I started out our investments in equities. In addition to a few unit trusts, we purchased nine holdings in investment trusts, all of them direct from the trust manager. Some of them sent share certificates and the rest as nominee holdings in the trust's share plans. All these plans were then free and the costs were born by the investment trust as a promotional exercise.

Over the years, these IT-sponsored plans have either completely closed or introduced charges or restrictions. For example, about ten years ago, Securities Trust of Scotland (STS) closed their plan and switched their holdings to Alliance Trust Savings; soon after that, ATS ramped up the cost with their move to flat-rate charging (prohibitive for our small £8k holding) so we paid for the holding to be certificated. In 2013, Foreign&Colonial introduced charging (I understand they were switching the running of their share plan to Halifax Share Dealing), even worse, Halifax systems won't allow accounts in joint names to trade so everything has to be done by post - we certificated the holding. In late 2013, the Witan share plan also introduced charging and we certificated again. And last year, Scottish Investment Trust decided to close their share plan (also run by Halifax Share Dealing) - we took the offer of commission-free dealing and sold the holding (and repurchased in one of our ISAs).

The only investment trust share plan we've had dealings with and is still running is the Baillie Gifford plan (for our holding in Scottish Mortgage Trust), but in the knowledge that we would be wanting to run-down our holding over the next few years and that online trading within share plans is cumbersome and borderline impractical, we certificated our holding (for free!) and transferred them to a share broker's nominee account.

With hindsight (whilst recogizing that online execution-only brokers weren't around in 1993), we would have simplified our buy-and-hold investment strategy if we had placed our investments through a specialist - we now have holdings in twenty-five different investment trusts at IWeb and SVS (with our SIPPs at AJBell). Of course, the differing trading processes for funds would alter the priorities.

Alexland

[quote=[Deleted User];74619551]And for the same reason, the OP should make 0.25% interest on cash held with Vanguard[/QUOTE]

But with Vanguard there is no need to run a cash balance as they are happy to collect fees via direct debit.

Alex.

Alexland

pafpcg wrote: »

The only investment trust share plan we've had dealings with and is still running is the Baillie Gifford plan (for our holding in Scottish Mortgage Trust)

Very interesting; I didn't know that so many old investment trust schemes had moved to Halifax SD. The BG online client access website is very old fashioned (even compared to Halifax SD which is hardly slick) and the cost is so low that I cannot see them investing in it further so eventually with tech refresh and increasing security requirements then it seems unlikely they will continue to run it either which would be a shame as I quite like it.

Alex

TUVOK

Firstly, many thanks for the replies and secondly my apologies as I entered an incorrect figure in my opening message.
To clarify, I was basing my query on a £5K investment over a 5 year period in a Vanguard Life Strategy 20% equity (Acc) held in a Stocks and shares ISA
HL own figures for this fund are : HL charges £121-75 and investment charges of £94-15 making a total for the 5 year period of £ 215-90
From the Vanguard site, there is a fund charge of 0.22% and I believe an account fee of 0.15%, making the total fee charge of 0.37%, which equates to £18-50 for 1 year and £92-50 for 5 years.
I hope that these figures are correct? If yes, I calculate the difference as £123-40 for a £5000-00 investment over a 5 year period, which works out as a saving of £24-68 over a single year.
Am I correct or have I missed some thing that more experienced members can point out.
My thanks for your help.

bowlhead99

Whether you buy the fund from Vanguard direct or from HL, the fund still has running costs of that 0.22% you mention (plus internal transaction costs each time the fund is buying and selling the underlying investments, which are harder to quantify).

So the difference is how much you pay for the platform service (custody of your investment in the fund and administration of your account) which is charged at 0.15% a year at Vanguardinvestor direct, or 0.45% on HL's service. The difference between 0.15% a year and 0.45% a year is 0.30% a year. If you have £5000 invested, multiply the 0.30% fee difference by the £5000 and you can see that the difference will be £15 a year. For a five year period that will be £15 X 5 = £75.

The £15 a year assumes the fund is worth £5000. If the fund increases in value over time, the platform admin charge difference goes up, because it's a fixed percentage of the asset value. If it does down, your charges go down. The HL calculator assumes that the investment grows at 4% a year, so that although their charge is a constant percentage, it's charged on a higher balance every quarter. In other words if you look at it as 0.45% a year, that's 0 45% X £5000 at the beginning of the investment , £22.50 a year, but the total projection is more than £22.50x 5 = £112.50, because the investment value is presumed to be going up. So they say £121.75 for their charge. To compare apples to apples you would have to assume the same performance at Vanguard direct.

Also HL's figures attempt to capture more of the 'true' cost of the vanguard fund than the headline numbers on Vanguard's own site, to try to improve comparability with other investments they sell. As you mentioned, the ongoing charges figure for the fund is 0.22% (£11 a year on £5000 invested) but HL quote the "investment charges" as £17 in the first year rising to £20 in the fifth year as the fund value grows. The excess amount over and above the Ongoing Charges Figure of 0.22% is an attempt to capture the internal "transaction costs" within the Vanguard fund (in other words, what I mentioned in my opening paragraph as "plus internal transaction costs each time the fund is buying and selling the underlying investments, which are harder to quantify")

But those costs will be the same no matter where you buy the fund because they are internal to the fund and are not levied by the investment platform. So if you are choosing between platforms they don't come into it.

As an aside: funds are supposed to make their "internal transaction costs" figures known, to help aid comparability between funds. However, the way managers calculate these somewhat theoretical figures does not give amazingly meaningful numbers. So, many people will still focus on the 'OCF' or ongoing charges figure which was well understood in the industry before the transaction costs stuff came in. Both HL and Vanguard show the OCF as 0.22% on their summary/ at a glance page and make you dig further to find the extra cost information. But the internal transaction costs borne by the fund itself when buying or selling it's investments won't make a difference to your decision to go direct or via a fund supermarket - because whatever the number is, it's the same number no matter where you buy the fund.

TUVOK

Thank you for your excellent analysis of my query.
I can now see clearly, as you state the saving of approx. £15-00 per year,
My original query arose because of an examination I have carried out on what HL is charging me per year!
HL provides an excellent service, but at a high cost,.
Obviously I do not want any errors etc to happen with my investments such as I have read about with other platforms, but I am actively investigating all avenues to reduce my HL costs.
I have eliminated paper reporting etc from my HL account and I have invested in some index trackers for various areas, which are producing good returns, perhaps highlighted by lower costs.
I invest in funds and equities only, both in an ISA account and a ordinary Vantage account, no IT's.
I would be interested to read of what other forum members have done to lower their HL costs?

eskbanker

TUVOK wrote: »

I would be interested to read of what other forum members have done to lower their HL costs?

Shopped around to identify cheaper providers!

http://monevator.com/find-the-best-online-broker/
http://www.comparefundplatforms.com/
https://forums.moneysavingexpert.com/discussion/5583030

Not sure what's behind your perception that other platforms make errors and that (implicitly) HL don't, but would humbly suggest that's not an accurate reflection of the market....

TUVOK

My perception of other platforms is not perhaps errors as such but quickness of service, scope of platform etc etc, mainly derived from comments on Citywire forum and This is Money.
I have found HL to give excellent quick service, I have never had the slightest problem with them, but would like to reduce the fee charged. I have tried negotiating for a reduced fee but with out success.
Thank you for the links.

dunstonh

HL provides an excellent service, but at a high cost,.

it is one of the more expensive platforms but with small values, it isnt worth the hassle of moving.

The time wasted on moving and time out of market (if you do cash transfer) on an amount of £5000 is just not worth it.

The markets have moved in the space of minutes, what you are looking to save over two years.