Making charges more transparent

Froggitt

My mum has just received a letter from Fidelity/Funds Network (?) titled making charges more transparent. She was in great health up until she was told that she was paying over two grand a year in charges.

Can someone (probably from the IFA community here) outline what each of the charges below are for, and thoughts/ideas about how to reduce each of them. Note there has been no trading activity on these funds in years.....they are just "put away".

Service Charges – service fee £373.81

Investment Charges - ongoing charge figures £I,254.84
ongoing transaction costs £275.60

Adviser Fees - adviser ongoing fees £282.73

Total Charges for the Year £2,186,98

Malthusian

Froggitt wrote: »

She was in great health up until she was told that she was paying over two grand a year in charges.

Unless you tell us how much she has invested we have no idea whether that's reasonable or not.

Can someone (probably from the IFA community here) outline what each of the charges below are for, and thoughts/ideas about how to reduce each of them.

Cashing in the entire investment, firing the adviser and putting it in her bank account would reduce charges to 0 (although not really, your bank just doesn't disclose its charges).

Obviously that would be highly likely to leave her worse off in the long term, but you just asked us about how to reduce charges.

It is impossible to give suggestions that balance the desire to reduce charges with (presumably) the desire to continue achieving real growth with her capital, as we don't know what she is invested in or what her objectives are. Therefore we don't know whether there are any options that also achieve her aims at lower cost.

Fidelity is already low cost as platforms for advised clients go.

If "Service Charges" are the platform fee (which for Fidelity is usually £45 + 0.25% per year, but this can vary) then the investment fees look rather high compared to the platform cost. And the IFA's fee looks curiously low. But there is so little to go on that even that is a guessing game.

Note there has been no trading activity on these funds in years.....they are just "put away".

What was unsuitable about them that required switching?

Alexland

Yes it would be interesting to know the account valuation. I am surprised the advisor is charging less than the platform service charge. It will be possible to substantially reduce this cost however it will take time to learn more and determine a suitable investment approach and products. For those with no experience they could end up with lower costs but a worse result.

Alex

Linton

She should be able to get a transaction report from the Fidelity website, assuming she does have online access. If not perhaps she can ask Fidelity to send one. That should provide useful info. Fidelity clearly think there are transactions happening. One thought is that she has no cash in her account and so Fidelity are selling off some of her funds to pay the charges.



As Mathusian says, the split of the charges looks inconsistent. As well as the amount invested it may be helpful to know whether this is a SIPP or ISA or a simple investment account and what funds or other investments she holds in the account. Does she use an IFA?

dunstonh

an someone (probably from the IFA community here) outline what each of the charges below are for, and thoughts/ideas about how to reduce each of them.

Why do the charges need reducing? Charges are not the primary issue. Suitability is. Charges are secondary.

It could be that better options exist that are cheaper but no-one should let charges be the pimary driver.

ongoing transaction costs £275.60

You can mostly ignore that column. Officially, I wouldn't say that as I, like other regulated individuals/firms, has to declare it. However, its a flawed calculation that includes some profit and loss.

Say there is some property in her funds. The fund house has to pay for maintance of that property. Let say an electrician is sent round to fit some new lights. In the past, the fund would pay that and you wouldnt know about it as it would be reflected in the profit/loss. Now, the fund still pays it and it is still reflected in the profit/loss but the Transaction Charges column takes all costs like that and shows the investor's share of those sorts of costs. So, its not an explicit charge but an implicit one.

Some funds, by their very nature, will have higher TC than others.

Froggitt

btw, she has never received any advice in return for adviser fees. From memory, it is funds worth around £120k.

And say the funds growth is say 4%, losing about half of the growth on charges is a lot of money.

Albermarle

If the funds total is £120K , then paying charges of £2,200 ( maybe £2000 if you partially discount the transaction charges ) is a bit on the higher side but not dramatically so .
The service fee of 0.3% is typical.
The ongoing fund charges of 1% is also typical for actively managed funds .
Not sure about the advisor fee , as it is too low for an active financial advisor ( as you say you do not get any advice anyway ) Presume it is related to the advisor who set up the account but I thought these trailing commissions had been stopped nowadays.
Probably with a change to cheaper funds you could save some money but you might make the wrong choices and shoot yourself in the foot.

So definitely worth investigating the charges ( especially the advisor fee ) but you have to accept using financial services costs money , just like any service.

Malthusian

Froggitt wrote: »

btw, she has never received any advice in return for adviser fees.

I struggle to believe that.

If the issue is that she hasn't received any ongoing advice for a while, she needs to check the servicing agreement she completed with the adviser as to what level of service she has agreed to.

From memory, it is funds worth around £120k.

In which case service charges are as expected, fund management fees seem high (suggesting heavy use of actively managed funds), and the adviser fees seem very very low. Very few advisers if any would charge less than 0.25% a year for ongoing servicing on a portfolio of £120k.

Malthusian

Albermarle wrote: »

Presume it is related to the advisor who set up the account but I thought these trailing commissions had been stopped nowadays.

Yep. If it's trail commission on a stocks & shares ISA or unwrapped funds it should have been turned off by 2016.

If it's an insurance bond or pension account set up before 2012 it might still be paying trail commission.

But trail commission was generally 0.5% per year for the vast majority of funds - though some funds with lower AMCs paid less.

dunstonh

And say the funds growth is say 4%, losing about half of the growth on charges is a lot of money.

Does she have a savings account?
She is probably losing over half in charges on that too. Except savings accounts are implicit and not explicit.

If she is getting 4% before charges then you have to question the investments. If she was getting 4% after charges then fair enough for a cautious spread.

btw, she has never received any advice in return for adviser fees

How did she end up investing in Fidelity?
Is she using a non-advised service? the adviser charge is only 0.2x% which is low. This may suggest it is a non-advised service (such as the type where you used to pay x% but get commission rebated).

Presume it is related to the advisor who set up the account but I thought these trailing commissions had been stopped nowadays.

Still available on non-advised stuff and still available on investments set up prior to 2013 where there has been no disturbance event. ISAs and unwrapped held on a platform had to end commission. Direct fund house held investments did not. This is not commission though. This is an explicit charge.

Linton

Note that the fund management charges are not deducted from her account, they are already accounted for in the price of the funds. They sort of represent the difference between what you get from the fund and what you would get if you made exactly the same transactions directly yourself and did not charge for your time. However you do not know what those transactions were. Some other fund would make different transactions and get a different investment return.