Another funds charge question

gowgowuk

Hello, sorry if this has been answered before, I don't seem to find the info.
I have been recently consulting with an IFA who advises me to transfer my existing Interactive investor (ii) stock and shares ISA to a Brewin Dolphin managed portfolio on the Aviva platform. I am not automatically against this, for a peace of mind point of view, but I'm trying to understand the different costs and charges. The IFA is saying that I would save money as the total charges + platform fee+ Discretionary Investment Model Management charges. I wanted to have a look at funds charges. The Aviva ISA quote is evaluating these using the OFT/TER charges corresponding to what I see on the fund Morningstar page (Ongoing Charge%). For my ii ISA, I have last year "cost disclosure document" detailing costs for each fund. It include "ongoing charges" (similar but not always the same as the Morningstar ones) but also an entry called ""Transaction costs" and defined as "Costs incurred for purchasing and selling securities within the fund portfolio. Costs include brokerage commissions, stamp duty and spreads.". So, these are transactions costs internal to the funds (not MY transactions).
The IFA says that Aviva is charging differently and would never charge more than the ongoing costs, but I wonder about these extra "transaction costs" charged by the funds in my ii ISA. Do funds charge differently on different platform? Should I include these in my comparison? Would Aviva not add these costs as well? I'm confused...

Many thanks

Albermarle

There is some dispute about whether to include transaction costs or not but I think most people would say they are internal costs for the fund and can be ignored . AFAIK they are not even reported in a consistent way.

gowgowuk

Albermarle said:

There is some dispute about whether to include transaction costs or not but I think most people would say they are internal costs for the fund and can be ignored . AFAIK they are not even reported in a consistent way.

Thanks! So, in order to compare my funds with the Aviva ones, I really should consider the "ongoing charges", not the total, as the IFA has done in his comparisons? Doing that, The Aviva option looks less attractive, of course.

dunstonh

The IFA is saying that I would save money as the total charges + platform fee+ Discretionary Investment Model Management charges. I wanted to have a look at funds charges

To be honest, it is rare to save money in charges where a DFM is involved.  A DFM is an additional layer of charges on top of non-DFM investments.  So, it's at a disadvantage straight away over a non-DFM portfolio.   

The IFA says that Aviva is charging differently and would never charge more than the ongoing costs, but I wonder about these extra "transaction costs" charged by the funds in my ii ISA. 

The IFA is wrong. Aviva charges exactly the same way as every other platform.    Every Unit Trust/OEIC discloses its TC and IC.    Pension funds and insurance funds work slightly differently and there is no requirement to disclose TC & IC in insured contracts as the EU directive did not include those (MiFIDII didnt apply to pensions or insured contracts).   However, it is considered best practice to do so.     An exception would be in a comparison of costs where the existing plan uses insured funds and the new plan uses UT/OEICs where you can compare on a like for like basis.

Most platforms will use full disclosure on all contracts to follow the best practice.  Aviva do on their ex-post disclosures.

That said, technically, Aviva doesn't have to on the pension as it falls under the old Life and Pensions company and outside of MiFIDII.  But they will still disclose them.

 Do funds charge differently on different platform?

No.  (caveat, there are some super clean funds - discounted from the norm that some platforms have).

Should I include these in my comparison? 

Most people do not give two hoots about the TC.  However, you should look at IC/Other.   Although in most cases it is zero (you are looking to see that it is zero, and if not, then understand why it isn't).

Would Aviva not add these costs as well?

No platform adds those costs as they are synthetic creations.   They are not explicit charges.  They are disclosures of what your share of the internal charges the fund suffers that are not included in the OCF could have been in any given period.   They don't add much value either due to the different ways they can be calculated to give different outcomes.  And the way they can change quickly from quarter to quarter.

Basically, your charges should be:

• Platform charge
• OCF  (or TER with ETF/ITs)
• TC 
• IC/Other
• DFM 
• Adviser
• Total

You can largely disregard TC and IC/Other as "information" but the rest are real charges.

So, you could have a platform charge of 0.25%, OCF of 0.30%, TC of 0.08%, IC of 0.00% and DFM of 0.00% (if no DFM) and adviser of 0.50% = 1.13%.  
Or it could be a platform charge for 0.25%, OCF of 0.90%, TC of 0.23%, IC of 0.00% and DFM of 0.33% and adviser of 1.00% = 2.71%.

In both cases, you would largely disregard the TC.   Aviva's charge would be the same it is the DFM or no DFM.  It is OCF and adviser charges where things would differ.

gowgowuk

Thank for the detailed info, dunstonh. That's what I was suspecting, but wasn't really sure.
I'm probably going to stick with my own portfolio, as it's really not *that* different from the DFM one, in terms of risk and diversification and performance.