Fund fees

Stephen7372

How do the fees for funds work ? Is there a hidden maintenance fee and additional fee from where you buy it from ?

Just had additional thought if you go to a financial advisor is that another fee how would that be listed ?
Do you know what the anacronyms are ?

ivormonee

Sure thing. The funds have their own fee built in; it's usually referred to as the OCF. Where you buy it will also levy their own fee on top, sometimes referred to as the "platform fee". There are some other fees not explicitly stated and these include the funds' transaction costs for dealing in the underlying investments.

JohnWinder

Only two fees? We'd be lucky. The fund sheet I'm looking at includes 'initial charge' (is that a fee?) and 'performance fee'. What are we up to now? And is a 'performance fee' included in the OCR?

Albermarle

All funds have explanatory documents that clearly state the OCF % . This charge is taken out of the fund , so you never pay it directly .
You can buy some funds direct but normally it is easier for the public to buy them via an investment platform ( which have their own charge ) It should be clear on the platform how much each fund costs and the above mentioned documents will also be available.
Some simpler/robo investing platforms with only very limited fund choices,  usually just have one charge that covers everything.

Linton

Fund fees are taken directly from the total assets of the fund and used to pay things like employees salary.  They are included in the performance figures and are not something you pay in addition.

If you set up an account with a platform there will be charges which you do pay directly. 

Prism

JohnWinder said:

Only two fees? We'd be lucky. The fund sheet I'm looking at includes 'initial charge' (is that a fee?) and 'performance fee'. What are we up to now? And is a 'performance fee' included in the OCR?

No they are extra. Initial charge fees are often using to discourage investment in a fund if lets say it is soft closed. Performance fees seem rare nowadays but effectively strip off a chunk of outperformance assuming the fund beats it benchmark. I am not keen since it seems to encourage bigger risk taking. I guess it comes from the old 2 and 20 model.

Stephen7372

ivormonee said:

Sure thing. The funds have their own fee built in; it's usually referred to as the OCF. Where you buy it will also levy their own fee on top, sometimes referred to as the "platform fee". There are some other fees not explicitly stated and these include the funds' transaction costs for dealing in the underlying investments.

What does OCF stand for ?

dunstonh

How do the fees for funds work ? Is there a hidden maintenance fee and additional fee from where you buy it from ?

The charges can be broken down as follows:

• Platform charge/provider charge - charged explicitly and external to the fund.
• Adviser charge - charged explicitly and external to the fund
• OCF/TER or AMC depending on type of fund -   Charged internally from within the fund and reflected in the unit price
• Transaction charges -  A synthetic figure based on a calculation with flaws.   Funds will suffer internal costs that may not be reflected in the OCF.   These are not explicit charges you are paying.   They are charges the fund is paying itself and the synthetic calculation is trying to show that cost pro-rata back to the investors.   However, there is not just one calculation method and the outcomes from the different methods can lead to different figures.   Its a fudged EU directive that caused this and most investors ignore it.
• Incidental/Other charges - a catchall for anything not covered by the above.  Usually zero with most funds.

Fund factsheets may show an initial charge but in most cases that will not apply with most distribution channels.   Typically only applies if you buy direct rather than via a platform.  In some cases, the annual charges will be lower than the factsheet too where discounts have been obtained (mainly seen on life funds and pension funds).

Some platforms have a simple charging structure where there is just a percentage rate and nothing else.   Others will have a large menu of charges for various events.   For some people, the clean rate is better.  For others, the more complicated menu of charges is better.

ivormonee

Stephen7372 said:

ivormonee said:

Sure thing. The funds have their own fee built in; it's usually referred to as the OCF. Where you buy it will also levy their own fee on top, sometimes referred to as the "platform fee". There are some other fees not explicitly stated and these include the funds' transaction costs for dealing in the underlying investments.

What does OCF stand for ?

So, OCF stands for "Ongoing Charges Figure". It is also known as TER or "Total Expense Ratio". Within these are various bits, the biggest being the AMC or "Annual Management Charge". The point of having an OCF (or TER) is so that we, as investors, are given a figure that includes all charges that are set by the fund to allow us to make comparisons between them.

The platform charge, on the other hand, is the charge that the platform charges for holding the fund for you.

As an example, if fund A has an OCF of 0.80% and you hold it with a platform that charges, say, 0.30% then your total cost for holding that fund will be 0.80% + 0.30% = 1.10%.

If fund B has an OCF of 0.20%, for example, then, if holding with the above platform that charges 0.30%, then your cost for holding it is 0.20% + 0.30% = 0.50%.

Now, if we were to look at a different platform that charges 0.15% as its fee, then to hold the funds on this platform would cost 0.80% + 0.15% = 0.95% for fund A and, for fund B it would be 0.20% + 0.15% = 0.35%.
What I am trying to illustrate with these examples is how the overall cost can be compared, depending on (a) the "OCF" and (b) the platform charge.

This is how it works but there may be some intricacies that may need to be factored in. However, as these are usually not applicable to the vast majority of cases I haven't complicated things unnecessarily, but if we wanted to do so, we'd factor in any initial charges and performance charges (which the fund itself would impose), transaction costs (which are not known in advance and also incurred by the fund) and adviser costs (charged by an adviser).

Obviously, don't just focus on charges. You need to decide what you want to do, achieve, invest etc. Deciding on your strategy and objectives comes first and then, once that's done, you progress to implement that strategy in the most cost effective way possible; it is at that point that consideration is given (and quite rightly so) to costs (aka. fees and charges).

Stephen7372

Thanks I was wondering how do Chelsea fees compare to alternaitves.
https://www.chelseafs.co.uk/fundstore/charges/
I looked at AJ Bell but can't find the platform charge for funds held in an ISA.
BTW at the moment we're trying to decided wether to use a financial advisor or not, they do seem quite expensive really an extra 1 or so percent.

dunstonh

Thanks I was wondering how do Chelsea fees compare to alternaitves.
https://www.chelseafs.co.uk/fundstore/charges/

Expensive as they are charging 0.4% on top of the platform charge for a non-advised service.   Advisers typically charge 0.5%  whereas DIY non-advised typically has no additional charge on top.

So, effectively you are paying advised rates for a non-advised service.

BTW at the moment we're trying to decided wether to use a financial advisor or not, they do seem quite expensive really an extra 1 or so percent.

The dominant IFA ongoing charge is 0.5%   only 0.1% more than ChelseaFS non advised charge.    1% is typically seen at the lower value end