Fees and Charges

dunstonh

I'm currently 10% down from the peak value of my 90% equity portfolio. UK investors should be a bit more activist about what they are paying in fees.

So, in reality, you are not really any better or worse with your 90% equity portfolio than a UK investor paying slightly more in annual charges.     I am sure the UK would be cheaper too if it had another 300 million people it could market it.

For reference, a 90/10 split (global tracker/gilt tracker) from peak to yesterday was 8.56% down net off fund charges.  add on 0.25% for platform and even 0.5% for adviser, if they had one) and its still less 10%.

Transaction costs 0.00%

The UK still follows MIFIDII EU directive.  This does not apply to the US.     Transaction costs are a synthetic figure and not an actual figure.  If the US followed the EU directive, then you would see some degree of transaction costs being reported. Trackers are mostly around the 0.01%-0.02% level.  For Example, the Vanguard S&P500 ETF has TC of 0.02%.

Fund OCF: 0.08%

You would expect less than that in the US as that makes them more than the UK.  0.06% for mainstream markets is possible here.   However, like TC, this could be down to what is and isn't included in the OCF or equivalent in the US as there is no global standard.

Platform charge 0.00%

That is going to be hard under MiFIDII and RDR as platforms cannot be paid for by the fund house.   So, either the platform has to be able to generate sufficient earnings from elsewhere to cross subsidise the platform or only offer their own funds and use an increased cost in their own fund range to subsidise it and hope they get sufficient scale to make up for the reduced revenue of there being no platform charge.   Getting sufficient scale in the UK, or any European country is going to be very hard.   

However, ignoring the platforms operating at a loss, there is a trend towards price capping or tiering off.     And there are some platforms now where there is no charge as the cost is covered by the adviser firm. There is some duplication and efficiencies that allow for cost reductions there.  IFAs have back office software with client portals  Some have straight through processing. So, its duplication that could be costed out when the software is mature enough.  i.e. IFAs currently pay the backoffice software supplier.  However, what if that was the platform itself.  IFAs would pay the platform and the platform could offer lower to nil platform charge. - that is the theory but its early days in software terms.

bostonerimus

dunstonh said:

I'm currently 10% down from the peak value of my 90% equity portfolio. UK investors should be a bit more activist about what they are paying in fees.

So, in reality, you are not really any better or worse with your 90% equity portfolio than a UK investor paying slightly more in annual charges.     I am sure the UK would be cheaper too if it had another 300 million people it could market it.

For reference, a 90/10 split (global tracker/gilt tracker) from peak to yesterday was 8.56% down net off fund charges.  add on 0.25% for platform and even 0.5% for adviser, if they had one) and its still less 10%.

Transaction costs 0.00%

The UK still follows MIFIDII EU directive.  This does not apply to the US.     Transaction costs are a synthetic figure and not an actual figure.  If the US followed the EU directive, then you would see some degree of transaction costs being reported. Trackers are mostly around the 0.01%-0.02% level.  For Example, the Vanguard S&P500 ETF has TC of 0.02%.

Fund OCF: 0.08%

You would expect less than that in the US as that makes them more than the UK.  0.06% for mainstream markets is possible here.   However, like TC, this could be down to what is and isn't included in the OCF or equivalent in the US as there is no global standard.

Platform charge 0.00%

That is going to be hard under MiFIDII and RDR as platforms cannot be paid for by the fund house.   So, either the platform has to be able to generate sufficient earnings from elsewhere to cross subsidise the platform or only offer their own funds and use an increased cost in their own fund range to subsidise it and hope they get sufficient scale to make up for the reduced revenue of there being no platform charge.   Getting sufficient scale in the UK, or any European country is going to be very hard.   

However, ignoring the platforms operating at a loss, there is a trend towards price capping or tiering off.     And there are some platforms now where there is no charge as the cost is covered by the adviser firm. There is some duplication and efficiencies that allow for cost reductions there.  IFAs have back office software with client portals  Some have straight through processing. So, its duplication that could be costed out when the software is mature enough.  i.e. IFAs currently pay the backoffice software supplier.  However, what if that was the platform itself.  IFAs would pay the platform and the platform could offer lower to nil platform charge. - that is the theory but its early days in software terms.

I'm not suggesting that a detailed comparison of the US vs UK costs is sensible as the two have very different investing landscapes and scales. However, maybe seeing something different will encourage UK investors to ask questions as to why they are paying what they do and demand a better deal.

As I don't exactly have a 90/10 global equity/bond tracker portfolio I'm not surprised that I'm not exactly tracking it, however you make a good point that a simple tracker portfolio will have recovered from the lows, but still have a way to go to get back to the peak. However over a longer time scale (10 years ) the annual returns of such a portfolio have been around 10% and you don't need to paid and advisor or expensive platform or fund fees to get that. 

Albermarle

garyelder said:

I wouldn’t pick it myself haven’t got a clue  

 Some one like Hargreaves Lansdown got to be so careful these days 

If you ' haven't a clue' about which pension provider to pick. Then how will you get on picking the investments within whichever pension provider you pick ? The latter is more important than the former. 

Pat38493

bostonerimus said:

This is not exactly relevant to the situation in the UK, but just as a comparison of costs I'm in the US and this is what I pay for my DIY portfolio.

Fund OCF: 0.08%
Transaction costs 0.00%

Platform charge 0.00%
Advisor charge. 0.0%
Total cost: 0.08%

I'm currently 10% down from the peak value of my 90% equity portfolio. UK investors should be a bit more activist about what they are paying in fees.

Thanks - this explains why some of the spreadsheets I have have downloaded from the US about retirement planning seem to default with charges that are an order of magnitude lower than UK charges.

Prism

Pat38493 said:

bostonerimus said:

This is not exactly relevant to the situation in the UK, but just as a comparison of costs I'm in the US and this is what I pay for my DIY portfolio.

Fund OCF: 0.08%
Transaction costs 0.00%

Platform charge 0.00%
Advisor charge. 0.0%
Total cost: 0.08%

I'm currently 10% down from the peak value of my 90% equity portfolio. UK investors should be a bit more activist about what they are paying in fees.

Thanks - this explains why some of the spreadsheets I have have downloaded from the US about retirement planning seem to default with charges that are an order of magnitude lower than UK charges.

You could easily get below 0.1% in the UK if so inclined 

SIPP platform charge with someone like AJBell or HL can be as low as 0.02% when you get to around £500k.
Amundi prime global ETF 0.05%
Amundi prime global gov bond ETF 0.05%

There is your global equity/bond portfolio at around 0.07%.

bostonerimus

Prism said:

Pat38493 said:

bostonerimus said:

This is not exactly relevant to the situation in the UK, but just as a comparison of costs I'm in the US and this is what I pay for my DIY portfolio.

Fund OCF: 0.08%
Transaction costs 0.00%

Platform charge 0.00%
Advisor charge. 0.0%
Total cost: 0.08%

I'm currently 10% down from the peak value of my 90% equity portfolio. UK investors should be a bit more activist about what they are paying in fees.

Thanks - this explains why some of the spreadsheets I have have downloaded from the US about retirement planning seem to default with charges that are an order of magnitude lower than UK charges.

You could easily get below 0.1% in the UK if so inclined 

SIPP platform charge with someone like AJBell or HL can be as low as 0.02% when you get to around £500k.
Amundi prime global ETF 0.05%
Amundi prime global gov bond ETF 0.05%

There is your global equity/bond portfolio at around 0.07%.

I hope more UK investors take note of this and start analyzing the fees they are paying and avoiding those that might be unnecessary.

Albermarle

Prism said:

Pat38493 said:

bostonerimus said:

This is not exactly relevant to the situation in the UK, but just as a comparison of costs I'm in the US and this is what I pay for my DIY portfolio.

Fund OCF: 0.08%
Transaction costs 0.00%

Platform charge 0.00%
Advisor charge. 0.0%
Total cost: 0.08%

I'm currently 10% down from the peak value of my 90% equity portfolio. UK investors should be a bit more activist about what they are paying in fees.

Thanks - this explains why some of the spreadsheets I have have downloaded from the US about retirement planning seem to default with charges that are an order of magnitude lower than UK charges.

You could easily get below 0.1% in the UK if so inclined 

SIPP platform charge with someone like AJBell or HL can be as low as 0.02% when you get to around £500k.
Amundi prime global ETF 0.05%
Amundi prime global gov bond ETF 0.05%

There is your global equity/bond portfolio at around 0.07%.

Or some index type funds at 0.1% to 0.13%. One off charge ( currently waived ) at Iweb.

Secret2ndAccount

If I've got this right, Amundi is based in Luxembourg, which doesn't have the best dual taxation agreements with the USA. So I think this fund pays more tax (internally) on profits than, say, HSBC MSCI World (Charge 0.15%). Thus, although the explicit charge is lower for the Amundi fund, it doesn't necessarily lead to the expected level of outperformance.
If anyone understands this better than me I would welcome the benefit of their knowledge. As I see it, the low charges would win out in a down year, but if the S&P is on fire, then the taxes would mount up.

Secret2ndAccount

Amundi fund is not that old so only 4 years of data to compare

GBP after ongoing charges with dividends reinvested. You have to look closely. Amundi is in blue, hiding under the HSBC in green

Username03725

dunstonh said:

Username03725 said:

Thanks. The general advice is what my instinct was telling me, that these initial charges + ongoing fees are on the high side. 

But the ongoing charge may not be.   If the bottom line is 1% and includes advice charge then it is not expensive.  If it doesn't include adviser charge then it is.  If no ongoing advice charge and at 1%, then is it the platform or provider charge?  Is it that a high ratio of managed funds have been used?      

Apologies for the delay; life's busy etc...

The 'ongoing fund' charge for each of the three current pots is 0.34%, 0.3% & 0.25%, with no platform or advisor fees. Up until around a year ago they were all doing ok showing net returns of around 6% across the board. Since Putin's efforts to destabilise western economies they've fallen back by about 15% but are now showing signs of growth again. 

The proposed xfer to a single managed pot would attract a one-off fee of 3% for the current total pot value of around £260k, so £7,800. On top of that the proposed fees are broken down as:

Ongoing fund charge: 0.6%
Platform fee: 0.3%
Advisor fee: 1.0%
Total annual charge: 1.90%

To me the initial one-off 3% plus the on-going 1.9% charge is a huge inroad into a not very big total pot. There's no intention to start drawdown until mid-2029 which gives 6 years growth. Back of envelope calculations show that anticipated income till then means no great need to touch savings etc, then in 2029 state pension + drawdown kicks in, and the anticipated spouse retirement in 2025 will mean 4 years of being a bit more frugal but with cash reserves available to fall back on. There's also a parked inheritance that could be ok (£100k) or substantial (£500k+ depending on...) that will materialise in the next 5 years. My working assumption is that it will be the lower of those two values; cautious approach unless it all pans out.

All my instincts say don't do this transfer; it's expensive and has no guarantee of being worth it. Guidance appreciated, but an IFA is the next obvious step at this stage.