Fees on Investments

dqnet

Hi, Probably a newbie question but assuming your investments were returning 4.0% year on year not including dividends and it's sitting in a tax free wrapper such as an SSISA or LISA. Let's also assume no further Funds/Stocs/Etfs etc. are bought or sold (no additional fees) If your platform fee was 0.25% like AJ Bell for example is your return as simple as 4.0% - 0.25% = 3.75% year on year? Or is there something I'm missing? Thanks!

masonic

Yes for a static balance, your net return after fees is the average growth rate of your investments minus percentage platform fee.

For more complex situations, it is better to unitise.

bowlhead99

Yes, if a fund is returning 4% net to its investors after all its internal investment and operating costs, and your platform wants to charge you 0.25%, you are going to be left with 3.75% to keep for yourself.

It is slightly more complicated than that, because if you imagine your fund starts the year being worth £1000, and grows 4%, it will end the year being worth £1040, and if that happens the average net asset value of the fund over the period will have been more like £1020. If you pay monthly or quarterly fees to the platform based on your average asset value for the period just gone, then some of the fees are charged on a little over £1000, some on £1010, £1020, 1030 etc. On average, the 0.25% fee from the platform will be charged on the £1020 average investment value that you'd held on the platform over the year, and not on the £1000 that you started the year with.

So, the 0.25% charge on £1020 is £2.55, not £2.50. So when you get to the end of the year your total return is £40 net gain on the investment less £2.55 payable to the platform, for an overall profit of £37.45 rather than £37.50. On a percentage basis your £1000 has really only grown 3.745% instead of 3.75% in your simplification.

dqnet

Simply perfect. Thanks guys!