IFA ongoing charges

boingy

If you are paying ongoing charges to an IFA, how do you terminate that arrangement? Can you just stop paying them and keep the investments invested as they are or is it more complicated? Are you tied to a contract?

GeoffTF

JohnWinder said:

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.

Of course the transaction costs should not be ignored. We know that figures from one fund manager cannot be compared with figures from another. We can also be pretty sure that most of the figures given will understate the true costs. Nonetheless, comparing figures from the same fund manager can yield useful information. When funds from different managers track the same index, we can compare the performance and assess the managers' honesty. (We can also compare open ended funds with ETFs.) Any under performance that is not explained by the published numbers raises questions. If the EU Commission receives enough complaints, it is obliged to consult on the matter and kick off the legislative process.

dunstonh

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.

reported transaction charges have been double the OCF.     Sometimes, they are minus figures.

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

Yet, some trackers have some of the biggest TC.

'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

This is money is the money section of the Daily Mail. A  trash paper in the UK.  Its not a great article.

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

as above, some trackers have some of the biggest TC.

The issue with TC was not what they initially set out to achieve.  That has a lot of merit.    The problem is the implementation which allows different calculation methods that result in different outcomes.  There is also the risk of short term issue of them that could lead to poor outcomes.    the key to it is to remember that it is not an explicit charge but a synthetic interpretation of what your share of the underlying fund charges are that are not captured in the OCF, which is an explicit charge.

In 2020, the HSBC GS Balanced fund TC went from 0.03% to 0.36% one quarter.    Its OCF at the time was 0.18%.   There was a thread on this site from a number of DIY posters saying they would not use it any more, which would have been a poor decision.

Here is what HSBC said at the time:

We do not currently offset our transaction costs by our anti-dilution (ADL) policy. Some of our competitors do. This method may result in negative transaction costs if the value of the anti-dilution mechanism exceeded the transaction costs for the period.

 i.e. if we assume two Funds managed by different firms generated transaction costs of 10 bps for the period and a gain of 25 bps due to their dilution adjustment process (assuming all other factors were equal):

 Firm 1 would publish a transaction cost figure of – 15 bps if they were offsetting their transaction costs by their ADL policy.

 Firm 2 would publish a transaction cost figure of + 15 bps because they do not use an ADL offset policy.

Both are correct. The charges the investor incurs are identical across both firms. But, because of the different methodologies used one appears more attractive than the other.  A lower transaction cost figure would not necessarily mean an investor is incurring higher costs if firms are using different methods to calculate their figures.

Beddie

boingy said:

If you are paying ongoing charges to an IFA, how do you terminate that arrangement? Can you just stop paying them and keep the investments invested as they are or is it more complicated? Are you tied to a contract?

Phone or email them and tell them to stop the ongoing charges. No contract, usually.