True cost of investment funds

head_in_a_spin

Hi All,

I've been switching funds recently within pensions. I'd been comparing them by looking at the funds performance against the benchmark i was interested in, then comparing the AMC and management/platform charges. In most cases i called the pension provider and confirmed the charges. All good. Then i read a thing recently about TER being the real cost. Going back over some funds i switched into i cant seem to find any TER (a post on the MSE forum suggests that funds have to list this?). Anyhow....how does an ordinary person like myself figure out the actual cost of an investment so we can compare apples with apples? Thanks in advance.

JohnWinder

You might find something here: https://forums.moneysavingexpert.com/discussion/6246708/fund-fees/p1

dunstonh

I've been switching funds recently within pensions. I'd been comparing them by looking at the funds performance against the benchmark i was interested in, then comparing the AMC and management/platform charges

The term AMC is used by different fund universes but is obsolete in all of them except life and pension funds.

If you are using insured funds in your pension then AMC is what you use.

If you are using OEICs/UTs then OCF is what you use

If you are using ETFs/ITs then you use OCF if available or TER if it is not.

Effectively, all three of these give you a similar outcome.  You must not use AMC with OEICs/UTs or ETFs/ITs as that is an obsolete measure.    They are still displayed for legacy reasons.

Then i read a thing recently about TER being the real cost.

Was that article aimed at UK investors or was it an old article? - either way it is wrong for most investment universes.  Apart from certain investments (which a novice is not likely to use) you would not use TER.

Going back over some funds i switched into i cant seem to find any TER 

Perhaps you are using investments that do not have a TER.

(a post on the MSE forum suggests that funds have to list this?).

Only it applies to the fund type you are using.

 Anyhow....how does an ordinary person like myself figure out the actual cost of an investment so we can compare apples with apples?

By using the appropriate charge type of the investment universe you are using.

Are you using insured funds, OEICs/UTs, ETFs or ITs?

head_in_a_spin

Thanks for such a clear answer!
They are all under various Aegon retireready pensions and targetplan pensions.
I opted to switch from the default fund in each case to choosing my own funds.
Some appear to be ETF and OEICs others are listed as fund type LIFE.

dunstonh

head_in_a_spin said:

Thanks for such a clear answer!
They are all under various Aegon retireready pensions and targetplan pensions.
I opted to switch from the default fund in each case to choosing my own funds.
Some appear to be ETF and OEICs others are listed as fund type LIFE.

The retire ready pension is a very basic pension with a handful of insured funds. (unless you have been ported onto it from an older Scottish Equitable pension where the old range remains available - but there are insured funds as well).

The RR pension doesn't offer any ETFs or OEICs.  Just insured funds.    So, AMC would be the measure to use with those.  On insured funds, AMC equates to OCF on UT/OEICs or TER for offshore.         The funds themselves may have underlying assets that are ETFs but that don't mean you are holding the actual ETFs.  The fund is holding them.  You hold the fund and its what you hold that matters.

RR is typically used as a workplace pension or where an older Scot Eq pension has been internally transferred to it.   It is available direct to the consumer.   It's a very basic option, which is reasonable for its intended market.    If you are looking at the fund factsheets, they will show the default maximum charge.  however, they may not be the actual charge you are on.    Some employers negotiate lower charges than the default.   Those discounts will not be taken into account on generic factsheets.   

head_in_a_spin

Once again, thanks for such a clear, straightforward answer