Pension charges - !!!!!!!

dunstonh

 I am in the USA, don't have a financial advisor and the pension account is from a government employer. This is why UK fees usually shock me.

Economies of scale.   330million people vs  67 million.  

That said, I am always surprised at the cost of US investments when I come across people that hold some. They are more expensive than the UK.    

The thing is that the US also has expensive investments too.  If you compare the cheap in one country with expensive in another than it doesn't really tell you the state of the market.   Both have cheap. Both have expensive.  

bostonerimus

dunstonh said:

 I am in the USA, don't have a financial advisor and the pension account is from a government employer. This is why UK fees usually shock me.

Economies of scale.   330million people vs  67 million.  

That said, I am always surprised at the cost of US investments when I come across people that hold some. They are more expensive than the UK.    

The thing is that the US also has expensive investments too.  If you compare the cheap in one country with expensive in another than it doesn't really tell you the state of the market.   Both have cheap. Both have expensive.  

Yes, you can certainly spend money on high fee active funds with upfront entry fees of 5% in the US and there are plenty of fools in the US (and the UK) who think they can buy performance. However, I still blanch at some of the pension fees people pay in the UK and also the US. I've been lucky to work for relatively large firms, agencies and universities in the US that were concerned about fees and worked with with pension providers like Fidelity and Vanguard who offer a range of low cost index funds, so that's my benchmark. I have some money with TIAA, but their fund fees are quite expensive so I now only have an annuity with them. When I see people paying 2%, 1% or even 0.5% in the UK I think there is a lot of room for improvement.

dunstonh

I wonder if the charges disclosures in the US are comparable to the EU (UK still follows EU law on this).  The inclusion of the funds internal charges (i.e. what the fund pays for dealing etc) is synthetically calculated using one of a few methods (so no consistency) and includes an element of profit and loss (which should never be shown as a charge but is).and then pro-rata shown in the overall charges even though it is not an explicit charge. 

[Deleted User]

bostonerimus said:

Deleted_User said:

Bobby_Applejuice said:

Thanks to all your replies. Much of this is over my head but I get the gist.

I am with Clerical Medical. 

It does clearly state 'We deduct 2.10% of the fund value each year. As you have more than one investment fund, the figure shown here represents the highest AMC of all your funds'

…

So you all generally appear to feel this has perfumed OK under the circumstances? As I'm out of work right now and can't contribute, would you recommend just letting it sit for now?

We can’t comment on performance. Whether its acceptable or not depends on your asset allocation. 

The charges should be transparent and anything over 1% is ludicrous in this day and age.  Personally, i consider anything over 0.5% unacceptable (including platform, fund and any other operational charges on total portfolio). 

If I were you, I would read a couple of books and then pick a more appropriate set of asset allocation, platform and funds. 

My latest quarterly statement for one of my DC accounts, which is 45% large cap US and international equity index funds and 55% capital preservation...essentially cash..., shows an 8% drop from March to June, there are no transaction fees when I make withdrawals and the annualized management fees are 0.08%. I am in the USA, don't have a financial advisor and the pension account is from a government employer. This is why UK fees usually shock me.

If either Liz or Rishi want to put money back into people's pockets reducing pension fees would be one way of doing it, but I don't see that happening - too interventionist and it would annoy too many powerful friends.

You should mention that GBP dropped by over 10% year to date vs USD. So if you were to count in pounds, you are up (I realize March to June is different than YTD but the outcome is the same). My portfolio fees are comparable.

[Deleted User]

dunstonh said:

 I am in the USA, don't have a financial advisor and the pension account is from a government employer. This is why UK fees usually shock me.

Economies of scale.   330million people vs  67 million.  

That said, I am always surprised at the cost of US investments when I come across people that hold some. They are more expensive than the UK.    

The thing is that the US also has expensive investments too.  If you compare the cheap in one country with expensive in another than it doesn't really tell you the state of the market.   Both have cheap. Both have expensive.  

Canada has half UK’s population but our investment costs are far lower and comparable to the US - unless you buy crazy mutual funds, of which we have plenty.  

The difference is that platform fees are zero and the cost of buying and selling stocks and ETFs in good brokerages is a fraction of what you can find in Britain with several offering zero commission ETF purchases.  Nor would they charge for moving into a withdrawal mode.

So, its not “the economy of scale”. 

I suspect the difference in costs is due to  regulations, many of British requirements might still have Brussels pedigree.  

Our brokerages do make some money by lending cash which is sitting and doing nothing. I think it’s forbidden to British brokerages but could be wrong.  In the US they also get a tiny fraction of the spread for trades. In that respect costs are indeed “underreported” but you still get 1c spread on popular ETFs. Basically, their business model is to attract huge streams of money by having a low cost model. 

People who don’t hold cash in brokerage accounts and trade little effectively are “subsidized” by the rest. 

And on the product side, in Canada we can always buy US stocks and ETFs so we gain from their “economy of scale”, which pushes prices down for Canadian products. 

Either way, while the costs in the UK can’t be as low as in N America, they can certainly be well under 0.5%.

dunstonh

The difference is that platform fees are zero and the cost of buying and selling stocks and ETFs in good brokerages is a fraction of what you can find in Britain with several offering zero commission ETF purchases.  Nor would they charge for moving into a withdrawal mode.

So, how do platforms make money?
They have operating costs and will need to make a profit (at some point).   So, if they have no revenue, how long are they going to exist?   

The vast majority of platforms/providers charge nothing to move to a withdrawal basis.

Either way, while the costs in the UK can’t be as low as in N America, they can certainly be well under 0.5%.

0.3% is the ballpark for the lowest cost mainstream options (there are cheaper but that is where you see  percentage based ones nowadays)

[Deleted User]

dunstonh said:

The difference is that platform fees are zero and the cost of buying and selling stocks and ETFs in good brokerages is a fraction of what you can find in Britain with several offering zero commission ETF purchases.  Nor would they charge for moving into a withdrawal mode.

So, how do platforms make money?
They have operating costs and will need to make a profit (at some point).   So, if they have no revenue, how long are they going to exist?   

See my previous comment. They make most of their money on people who trade shares a lot and hold cash in trading accounts as well as on people who trade on margin. If you trade on margin they charge interest and lend your shares. Their costs are low; things are different from the way investing was done in the 20th century. Also, brokerages cross-sell financial products, such as currency exchange, mortgages, etc.  Most are banks. They have revenue and solid profit margins. 

bostonerimus

dunstonh said:

The difference is that platform fees are zero and the cost of buying and selling stocks and ETFs in good brokerages is a fraction of what you can find in Britain with several offering zero commission ETF purchases.  Nor would they charge for moving into a withdrawal mode.

So, how do platforms make money?
They have operating costs and will need to make a profit (at some point).   So, if they have no revenue, how long are they going to exist?   

The vast majority of platforms/providers charge nothing to move to a withdrawal basis.

Either way, while the costs in the UK can’t be as low as in N America, they can certainly be well under 0.5%.

0.3% is the ballpark for the lowest cost mainstream options (there are cheaper but that is where you see  percentage based ones nowadays)

US Vanguard charge nothing in transaction fees on Vanguard funds and have low fund fees. They make their money on those fees and transaction fees on the brokerage side for non-Vanguard stocks and funds.

Albermarle

0.3% is the ballpark for the lowest cost mainstream options (there are cheaper but that is where you see  percentage based ones nowadays)

As above I have one ex employer pension, with a platform charge of 0.17% and some simple funds are 0.1% . On withdrawal the total cost would increase to just less than 0.3%. This is a little lower than my other DC pensions though, so maybe not really typical. Maybe related is that the website and customer service are poorer than my other ones .

Away from the typical workplace type pension , it is possible to get costs down lower by

1) Using a fixed fee platform ( the larger the amount of money involved, the lower the relative cost) assuming use of cheap index trackers etc
2) Some % charging platforms, cap costs for traded investments ( such as ETF's) at a low level.

Where costs are low there will be normally extra charges for withdrawals.

An often mentioned exception on this forum is Fidelity. It is possible to have a platform cost, including withdrawal costs of just £63pa, as long as no OEICS are involved, even on a large sum. Assuming use of low cost ETF's and only one purchase cost when buying them ( no regular trading) . Then on £100K or more, you would effectively be paying something like 0.1% to 0.2% depending on which ETF's you bought.

dunstonh

US Vanguard charge nothing in transaction fees on Vanguard funds and have low fund fees. They make their money on those fees and transaction fees on the brokerage side for non-Vanguard stocks and funds.

They must be getting transaction charges internally when they buy and sell things.   In the EU/UK, the cost of those is calculated and included in the costs disclosure to consumers even though that bit is implicit rather than eplicit

 They make most of their money on people who trade shares a lot and hold cash in trading accounts as well as on people who trade on margin. If you trade on margin they charge interest and lend your shares. Their costs are low; things are different from the way investing was done in the 20th century. Also, brokerages cross-sell financial products, such as currency exchange, mortgages, etc.  Most are banks. They have revenue and solid profit margins. 

The EU doesn't like that sort of cross subsidy in retail distribution.