Impact on Stocks And Shares ISA

eddie30

***HAVE ANYONE NOTICED***
if you have a stocks and shares ISA and trade on international markets your returns are directly impacted by the cost of FX charges! This is because legislation requires ISAs to be denominated in Sterling. So consider that if you buy a stock at total cost of $1000 you are charged 1.5% of the $1000 plus execution fee of say £10. And once you sell the stock, you are again charged 1.5% of the value of the stock plus execution fee of say £10. Not only that, brokers FX charges are not as competitive (captured market) so in reality you are probably paying around 1.8%-2.2% everytime you buy or sell a non UK stock. In order to break even, you need the stock to at least appreciate by 5% (excl charge of £20)!!!

SIPP hold mutiple currencies, I can understand the cash ISAs need to be in Sterling, why cant Stock ISAs hold in different currencies and only convert to Sterling when you withdraw?

Anyone can help on this?

Eddie30

Alexland

You wouldn't have these high costs if you use your S&S ISA to invest in low cost diversified funds on a platform with a suitable charging structure for your account value and trade pattern. Get yourself over to Vanguard Investor.

eddie30

There are work arounds but it greatly limits your options to funds and or UK listed stocks? Moving to funds meant replacing the "FX" with "Management" charge. Why not just call it UK Stocks and Shares if that is really what it is intended for? I dont think I'm the only one who noticed this surely there must be others with bigger funds...

lpgm

Most people here won't be trading individual stocks, or even investing in them. They'll be buying funds, priced in pounds, that invest around the world. The options are far from limited.

dunstonh

There are work arounds but it greatly limits your options to funds and or UK listed stocks?

Over 30,000 options is greatly limiting. I mean, nobody can select anything decent from 30,000+ options.

bowlhead99

eddie30 wrote: »

***HAVE ANYONE NOTICED***
if you have a stocks and shares ISA and trade on international markets your returns are directly impacted by the cost of FX charges!

Yes, we noticed. All brokers/platforms publish their FX conversion charges. You can shop around for the lower-cost services if for some reason your investment strategy requires you to hold a lot of foreign currency priced assets.

This is because legislation requires ISAs to be denominated in Sterling. So consider that if you buy a stock at total cost of $1000 you are charged 1.5% of the $1000 plus execution fee of say £10.

If your investment strategy requires you to buy individual foreign stocks in small chunks (of only about £750 a time) when there is a £10 charge to buy and to sell, you are already setting yourself up for an expensive time because the £20 of fees is already getting on for 3% of the investment value.

If FX costs another percent each way (don't know why you are going to use a broker who charges 2.2% each way, most don't charge that high) then yes it will cost you close to 5% total. However, a couple of percent of FX fees is not very much out of the 100%-300 of total return you would hope to get after a ten to twenty year hold (assuming a little over 7% a year total return, you'll double your money in nominal terms every decade)

If your strategy is to buy and sell small amounts (<£1000 a time) of foreign stocks and only hold them for the short term rather than invest for the long term, it's a relatively expensive process fraught with risk, which most people shouldn't spend their life savings on. But if the amounts being bought and sold are small and your buying and selling is frequent, your gains might be covered by the annual CGT exemption and then you don't need the ISA wrapper at all. If you don't use an ISA, you'll be allowed to hold foreign currency cash

SIPP hold mutiple currencies, I can understand the cash ISAs need to be in Sterling, why cant Stock ISAs hold in different currencies and only convert to Sterling when you withdraw?

Because foreign currency cash is not an allowable investment type.

An ISA isn't designed to let you park non sterling cash amounts.

Anyone can help on this?

The solution is to buy funds, investment trusts, investment companies etc which hold foreign assets but which can be subscribed to or bought on the stock market in sterling.

Or in some cases funds and investment companies can be bought in other currencies but with an intention to hold for a long time such that FX costs become immaterial. Fund managers buying foreign-priced stocks get nice low FX charges because they're doing £millions at a time. You as a small time brokerage customer will get a more expensive rate just like when you go to the currency desk at an airport as a tourist. The solution is to buy larger amounts (no paltry $1000 deals) and don't trade very often, hold for the long term.

eddie30

Thank you all for your comments. While I appreciate that there are work arounds it limits one's ability to buy non UK based shares in small amounts because the hurdle is so much steeper with the added FX charge. So my question is if the purpose of providing a cash and shares ISA that allows access to global shares why penalise individuals that want to invest in them?

With SIPP you have the option to settle your holdings in the denomination of where the stock is domiciled hence, you can buy stocks from the same exchange without incurring FX charge. Consider that initially you bought A because on evaluation you know that it's a good stock to hold, 6 months down, your thesis changed (it happens more often) you have to replace it with one you have a stronger conviction on, why then are you penalised to do that, with SIPP you can pay the dealing charge but not that FX. It makes sense.

1.5% each way (as brokers advertised) which is 3% for every sell/buy action is significant. Imagine Barclays charging you £1.5 for every £100 you spend when on holiday. It's a lot. And it happens at least once a year everytime you go on holiday. Now you do have options because you can choose a different credit card provider. Some cards do not have any charges at all. It's not law. So again my question is if this is offered on SIPP why not on ISA? If government does not want S&S ISA account holders to take non Sterling currencies, they can legislate to force account holders to convert to Sterling if they decide to withdraw their money. Removing FX will increase S&S ISA account holders a better chance of being independent on government funds when they retire.

londoninvestor

eddie30 wrote: »

Removing FX will increase S&S ISA account holders a better chance of being independent on government funds when they retire.

That's quite dubious, when a big weight of evidence shows that the vast majority of investors will do better by investing in a widely diversified portfolio with costs as low as possible. You can easily do that in an ISA through funds which are priced and traded in GBP.

eddie30 wrote: »

Anyone can help on this?

On this board, probably not. Perhaps write to your MP? You're correct of course that ISAs are inconsistent with SIPPs in this.