IFA ongoing charges

Jmuir1

Hi 
I am about to invest money via my IFA she has taken 2 % as a flat fee which is about right but ongoing yearly management fee is 1.5 %.  I’ve been happy with all advice and meetings.  Is 1.5% on the high end for yearly fees or is this normal.

Dazed_and_C0nfused

Jmuir1 said:

Hi 
I am about to invest money via my IFA she has taken 2 % as a flat fee which is about right but ongoing yearly management fee is 1.5 %.  I’ve been happy with all advice and meetings.  Is 1.5% on the high end for yearly fees or is this normal.

What is the amount being invested?

El_Torro

When you say 1.5% a year is that just the management fee? Or does it include the platform fee and fund fees as well? 

If it's all in then it's not terrible, though it is on the high side for an IFA.

dunstonh

Jmuir1 said:

Hi 
I am about to invest money via my IFA she has taken 2 % as a flat fee which is about right but ongoing yearly management fee is 1.5 %.  I’ve been happy with all advice and meetings.  Is 1.5% on the high end for yearly fees or is this normal.

I assume that the 1.5% is the adviser charge but a total of all charges.  Adviser fees tend to float between 0.5% and 1.0%.   
The total charge will be made up of the following
platform/provider charge
fund OCF
fund TC
fund IC
adviser
Total

Most investors, including those here, ignore the fund TC & IC but advisers are still required to include them in their disclosures (they are not explicit charges but synthetic calculations - with flaws).

If you have an adviser that has used all managed funds then the charge will be higher.  If they have used all passive funds, then the charges will be lower.  If a mixture of the two then somewhere in between.

if you have instructed responsible or ethical investing then charges tend to be higher.

Jmuir1

Thanks had a look and got it wrong, it’s actually 0.8 percent on going charge on total amount.  This seems about right from what I’ve read.  Each investment has of course on going fees etc. 

Jmuir1

Excuse my ignorance here but what does OCF, TC and IF mean. 

Jmuir1

Jmuir1 

What do the abbreviation mean in the above post 
thanks 

dunstonh

Jmuir1 said:

Excuse my ignorance here but what does OCF, TC and IF mean. 

Fund charges are made up of three things.  The OCF is the ongoing charges figure.  That is the key figure that most investors focus on.     TC is transaction charges and IC is incidental charges (or other).    TC is not an explicit charge but a bureaucratic EU fudge that had good intentions but morphed into stupidity.    Funds incur charges within their day to day business that are not explicitly charged to the investor but impact on the return.   TC is a means to show you what your share of internal charges are.     However, it's a synthetic figure that allows multiple calculation methods which lead to different outcomes.  In some cases, a negative figure.       Its best ignored and focus on the OCF.

Bostonerimus1

What will your IFA be doing to earn the money you are paying them?

JohnWinder

'TC is not an explicit charge but a bureaucratic EU fudge that had good intentions but morphed into stupidity.    Funds incur charges within their day to day business that are not explicitly charged to the investor but impact on the return.   TC is a means to show you what your share of internal charges are.  ....Its best ignored and focus on the OCF.'

Some of what I read suggests transaction charges have been half the size of the OCF, or more. Surely that's not to be ignored.

'Transaction costs occur when a fund’s manager buys or sells assets within the fund. These are not charges, but rather your share of the inevitable external costs, such as stamp duty and bid/offer spreads on individual shares, that are incurred whenever assets are traded. The level of these costs is variable since it depends on the number and nature of the transactions made.'

This is one of the suggested benefits of index tracking funds, ie they don't trade as much as an active fund might.

'Interestingly, seven of the 20 funds listed disclose their transaction costs as zero. However, it is unlikely these funds genuinely have no transaction costs, instead they could be being paid through company profits or already included within the ongoing charges cost.' https://www.thisismoney.co.uk/money/diyinvesting/article-5298879/How-funds-hidden-fees-Heres-check.html

'What characterises funds that incur higher transaction costs?

They are likely to:

• Trade in illiquid markets
• Frequently buy and sell 
• Trade during volatile conditions
• Undergo large shifts in investment strategy
• Trade in securities with high commissions
• Rebalance frequently

The best global tracker funds are the antithesis of this. Consequently they sport very low transaction costs. '  https://monevator.com/transaction-costs/

Jmuir1

Thanks for all the posts, most informative and appreciated 
J