S&S ISAs - Transaction fees & cheap platforms

HCIMbtw

Hi all,

I have about 4 month salary in cash so wanted to start saving asap am early 30s and have gone with a vanguard LS 100 for now with about 75% of my surplus cash each month as a direct debit. Idea being I can tweak contributions up or down as i go should circumstances change. Part of the rationale for me starting with vanguard is that I am effectively starting with no savings, and on balance its a very cheap and simple way to start.

Now I could simply use this for the next 20 or so years.. but after 2-3 years this should be about 30k, and in later years even more, I appreciate this is a bit far down the line, but I am wondering if once I start having this type of money in savings I should plan for transferring any of the build up to alternative platforms.

For example when reading the MSE S&S ISA guidance it looks like transfering out the whole balance to IWEB would be better value, in that there is no real platform charge and £5 per trade fee... I coudl save myself 0.19% each year, however, when looking into it there is a 0.5% transaction cost :eek: which seems to make using it look pretty unappealing.. i'm supposing after about 3-4 years being invested in IWeb>Vanguard should make more sense for a bigger lump sum...

I don't believe Vanguard, or AJ Youinvest have transaction fees? so looks like this might be something exclusive to iweb

For a slightly different skew on equities the HSBC global funds look quite appealing, if the vanguard wasn't so cheap and simple to set up i'd of probably started with them. Just wondering if anyone has any feedback on whether I should look at transferring out some chunks at a certain pot level based on better value related to fees? If so which platforms represent the best value? Whether switching investments 3-5 years down the line from one set of global equities to another would be sacrilege and the whole point of something like the LS 100 is investing for like 20 years?

cloud_dog

Go to SnowMans most excellent thread, download his spreadsheet and play with your possible future numbers and transactions to see what best suits you.

eskbanker

HCIMbtw wrote: »

For example when reading the MSE S&S ISA guidance it looks like transfering out the whole balance to IWEB would be better value, in that there is no real platform charge and £5 per trade fee... I coudl save myself 0.19% each year, however, when looking into it there is a 0.5% transaction cost :eek: which seems to make using it look pretty unappealing.. i'm supposing after about 3-4 years being invested in IWeb>Vanguard should make more sense for a bigger lump sum...

I don't believe Vanguard, or AJ Youinvest have transaction fees? so looks like this might be something exclusive to iweb

You're misreading the IWeb charges schedule - the 0.5% you refer to is the stamp duty applicable specifically to purchases of UK shares (not funds):

UK trades

When you buy UK stocks, you also have to pay a form of tax called Stamp Duty or Stamp Duty Reserve Tax to the Government. This is 0.5% of the value of the investments you buy (1% on Irish stocks). You do not pay Stamp Duty on AIM stocks or Exchange Traded Funds.

All platforms will include this mandatory charge, which is payable to the government.

In terms of your broader question regarding platform costs, there are a number of tools available that allow you to model which platforms are most cost-effective for your specific investment profile, so plug your numbers into the likes of:

http://monevator.com/compare-the-brokers/
http://www.comparefundplatforms.com/
https://forums.moneysavingexpert.com/discussion/5583030
https://www.boringmoney.co.uk/calculator/

Platform costs should generally be a secondary consideration to choice of investments though....

HCIMbtw

eskbanker wrote: »

You're misreading the IWeb charges schedule - the 0.5% you refer to is the stamp duty applicable specifically to purchases of UK shares (not funds):All platforms will include this mandatory charge, which is payable to the government

I wasn't reading their charges schedule, I can't provide links because i am a new member, but when you search funds on IWeb, then click into something like Vanguard LS 80 or one of the HSBC funds, it says typical transaction cost 0.5% (you'll be provided exact cost before investing)

if the 0.5% is just an industry standard for the direct purchase of shares and not funds then that makes it pretty simple, i'll take a look at the guidance but once I have some chunks established in the future it seems pretty clear it would make sense to transfer them into something like IWeb.. will just need to dig into what that means regarding ISA allowances

SonOf

I wasn't reading their charges schedule, I can't provide links because i am a new member, but when you search funds on IWeb, then click into something like Vanguard LS 80 or one of the HSBC funds, it says typical transaction cost 0.5% (you'll be provided exact cost before investing)

1 - Typical does not mean actual. Some funds actually have a negative transaction charge figure. Many are 0.0x%. Never go by typical. Use actual figures.
2 - Most people totally ignore transaction charges due to the flawed methodology used to create the artificial figure.
3 - You do not pay transaction charges. The fund pays the charge and is reflected in the investment return. The figure exists to show you how much is paid out of the fund relative to you. So, indirectly it is a cost to you but not an explicit cost.
4 - Some fund types will have a high TC cost because of their very nature. If you ignore those types of funds because of a higher TC then you could compromise your investment strategy. For example, property funds. Costs of maintaining that property show as TC. Funds investing in Small private firms getting expertise from the fund manager and third parties now have to show those costs as TC now.

Transaction charges are at fund level. Not platform/provider level. So, changing platform will not change the charge. VLS funds tend to be around 0.07%.

HCIMbtw

The snowman spreadsheet kind of confirms what I was thinking in that IWeb would be the preferred platform to switch lump sums into

Essentially direct debits into Vanguard represent the cheapest and most automatic way to set up regular monthly contributions, however on values of £10k in would be paying £15 per year platform charge which would be avoidable by switching a chunk into IWeb..

So as a basic strategy I think I might look at vanguard for regular contributions and then look at transfers into IWeb once I'm getting towards £20k, at this point platform fees will be £30pa and the cost of an IWeb transfer would cover itself, could then perhaps look at switching out chunks every year or so

Can't really face thinking about a more granular level management as it seems more hassle than it might be worth

HCIMbtw

SonOf wrote: »

1 - Typical does not mean actual. Some funds actually have a negative transaction charge figure. Many are 0.0x%. Never go by typical. Use actual figures.
2 - Most people totally ignore transaction charges due to the flawed methodology used to create the artificial figure.
3 - You do not pay transaction charges. The fund pays the charge and is reflected in the investment return. The figure exists to show you how much is paid out of the fund relative to you. So, indirectly it is a cost to you but not an explicit cost.
4 - Some fund types will have a high TC cost because of their very nature. If you ignore those types of funds because of a higher TC then you could compromise your investment strategy. For example, property funds. Costs of maintaining that property show as TC. Funds investing in Small private firms getting expertise from the fund manager and third parties now have to show those costs as TC now.

Transaction charges are at fund level. Not platform/provider level. So, changing platform will not change the charge. VLS funds tend to be around 0.07%.

point 1 I understand and it is the reason I was asking, without an IWeb account I cannot work out how to view the actual transaction fee for the fund, it just gives an expected. But I have to say IWeb was the first site to even flag a transaction fee as a thing.

Around your latter points not sure what you are on about with regard to 0.07% VLS fund transaction charge..

The way I understand it platform is 0.15% OCF if 0.22% for the VLS funds

It looks from the vanguard charges guidance that transaction fees are accounted for in the OCF and not an additional charge?

On IWeb it does not come across this way at all, they are broken out as seperate lines when you click on the fund detail - this is one of the reasons i produced the thread

SonOf

without an IWeb account I cannot work out how to view the actual transaction fee for the fund, it just gives an expected. But I have to say IWeb was the first site to even flag a transaction fee as a thing.

All funds publish their transaction charges. Go to trustnet or look at fund documentation.

Around your latter points not sure what you are on about with regard to 0.07% VLS fund transaction charge..

The way I understand it platform is 0.15% OCF if 0.22% for the VLS funds

No. That is not correct.

You have the following:
1 - platform charge - 0.15%
2 - OCF - 0.22%
3 - Transaction charges - 0.05% (you dont say which VLS fund it is so I am using VLS60 here, they have been as high as 0.11% previously)
4 - incidental/other charges - Nil
5 - adviser charge - Nil

You are going DIY so no adviser charge. VLS, like most funds does not have incidental charges. I have ignored the one off costs disclosures that are also required under MIFIDII as you are focusing on ongoing and its unlikely you will have any one-off costs.

It looks from the vanguard charges guidance that transaction fees are accounted for in the OCF and not an additional charge?

That is not correct.

On IWeb it does not come across this way at all, they are broken out as seperate lines when you click on the fund detail - this is one of the reasons I produced the thread

It is a requirement under MiFIDII that charges are shown a certain way and that includes showing TC separately (and incidental/other even if zero).

The definition of OCF is also undergoing change at the moment where some fund houses have moved their "OCF" to "Ongoing Cost Ex-Ante" and using that figure as OCF. Where this happens, it often increases the OCF by around 0.0x%. Despite the charge disclosure increasing, it hasn't actually increased the costs. Just as the disclosure of transaction charges hasnt increased the costs. They were already there. Its just the way they are shown that has changed.

eskbanker

Transaction costs are mentioned elsewhere but the way they're presented (for LS80 Acc) varies.

https://www.vanguardinvestor.co.uk/investments/vanguard-lifestrategy-80-equity-fund-accumulation-shares/cost-minimums doesn't quantify them but simply refers to:

Transaction costs also apply and are incurred when the fund buys or sells holdings

https://www.youinvest.co.uk/market-research/FUND:B4PQW15?tab=5 explicitly states 0.04%

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-80-equity-accumulation/costs takes another approach, quoting £11.26 of transaction costs over 5 years for a £5K holding.

However, the key message remains that these are costs that are internal to the fund rather than something charged separately to the investor, and so are independent of the platform used....

HCIMbtw

Ahh i think I get you now, the transaction costs are built into the actual performance of the fund. These can vary based on how the fund is set up and traded, e.g. if more transactions are being made by a fund, swapping share holdings or such the transaction fees add up. The only way i've been able to find any information on the transaction fees associated with the vanguard funds is in the annual financial report vanguard produce for all its funds, LS 100 is between 0-0.00-0.02% over the past 3 years.

Difficult to find that.. and slightly confusing in the way it is presented across platforms.. e.g. with iWeb I certainly thought it related to the transaction of me buying a fund, not the transaction charges taking place within a funds management

If I am still incorrect in my understanding not sure if there is much hope for me

EdSwippet

HCIMbtw wrote: »

... without an IWeb account I cannot work out how to view the actual transaction fee for the fund, it just gives an expected. But I have to say IWeb was the first site to even flag a transaction fee as a thing.

As a long-time iWeb customer, I can categorically confirm that there are no transaction charges beyond the £5 standard iWeb trading fee for buying or selling unit trusts and OEICs.

This 'typical 0.5%' message seemed to appear around the time that a new EU fees disclosure directive known as MiFID/PRIIPs took effect, at the start of 2018. I don't know exactly why they felt they had to add it, but it's not very helpful -- and worse, arguably misleading. A unit trust or OEIC will have some internal trading costs inside it when adjusting (or churning!) its holdings, and those can be hard to uncover. And a very few OEICs have a small 'dilution levy'; any that do will clearly display this. But at the platform/investor level, there are no extra added transaction fees beyond the platform's own, which is £5 in the case of iWeb.