Discount Brokers Q&A

gadgetmind

gunjin wrote: »

I have a six figure sum invested in 15 different funds (non-ISA) through Interactive Investor (III). The were mostly made quite some time ago, are all relatively high risk funds (Asia and other emerging markets etc.) and were intended as very long term investments (5-10 years).

Out of interest, were these the accumulation versions of the funds? If so, this can make reporting of dividends/income and tracking capitals gains quite tricky. This sum is large enough for this to be a possible issue.

3) How easy/costly is it to transfer 15 non-ISA fund holdings to another broker?
Any answers or pointers would be most welcome.

HL and BestInvest refund some trail and don't yet (but might in future) charge for holding funds. What you're wanting to do is "in specie re-registration", which is going to get faster and easier this year. However, I'm pretty sure there will still be per-holding charges.

Perelandra

gunjin wrote: »

#My questions therefore are:
1) I have no doubt that I would see a net benefit from III's rebate minus its £20/quarter fee but does anyone know whether III already rebates its commission trail to any extent? I cannot get through to their support team number to ask.
2) Are there other trustworthy discount brokers that provide a 100% rebate and no monthly/quarterly/annual charge?
3) How easy/costly is it to transfer 15 non-ISA fund holdings to another broker?

Any answers or pointers would be most welcome.

1) I believe iii refund all the trail commission, but I believe not the platform:

http://www.iii.co.uk/investing/charges

Alliance Trust will refund all the trail, and part of the platform, but have a higher quarterly fee. For 6-figures, if you like actively managed funds, AT may work out cheaper overall.


2) Cavendish Online is the closest to this (the fee they charge is genuinely inconsequential), but their fund choices are limited.


3) What gadget says. Normally cheaper to convert them all to a single fund (a charge per holding would normally apply), but that clearly carries more risk.

gunjin

gadgetmind wrote: »

Out of interest, were these the accumulation versions of the funds?

No, they are all entirely different funds bought in batches of 2-5 over several years. Some have changed their name but not split.

gadgetmind

gunjin wrote: »

No, they are all entirely different funds bought in batches of 2-5 over several years. Some have changed their name but not split.

Maybe we're at cross purposes. By funds I thought we were talking about OEICs and/or Unit Trusts. These often have income versions that pay out the income, and accumulation versions that automatically re-invest the money in the fund.

Despite this re-investment, the income needs to be declared and you need to track your purchase value for capital gains purposes.

See here -
http://monevator.com/income-tax-on-accumulation-unit/

Apologies if I have misunderstood.

gunjin

Perelandra wrote: »

1) I believe iii refund all the trail commission, but I believe not the platform:
http://www.iii.co.uk/investing/charges

Yes, that is their new policy from July this year. What I am trying to ascertain is whether they have always done this or always retained the trail commission for themselves. I suspect the latter which means there has been a substantial opportunity cost for staying with III all these years.

Perelandra wrote: »

Alliance Trust will refund all the trail, and part of the platform, but have a higher quarterly fee. For 6-figures, if you like actively managed funds, AT may work out cheaper overall.

I'm not sure what you mean by platform in the above reply. Is that the initial charge?
Also, I am not after anything other than the cheapest long-term home for these funds. I do not use nor value any advisory or research tool-based value added services discount brokers may provide and often use to justify regular account charges.

Perelandra wrote: »

2) Cavendish Online is the closest to this (the fee they charge is genuinely inconsequential), but their fund choices are limited.

My own preliminary research suggested it was the cheapest too. I am less concerned about fund choice as a) my new fund acquisitions are highly infrequent and b) I can always buy a fund they dont have elsewhere and transfer it in.

Thank you both for your replies, btw.

gunjin

gadgetmind wrote: »

Maybe we're at cross purposes. By funds I thought we were talking about OEICs and/or Unit Trusts. These often have income versions that pay out the income, and accumulation versions that automatically re-invest the money in the fund.

Despite this re-investment, the income needs to be declared and you need to track your purchase value for capital gains purposes.

See here -
http://monevator.com/income-tax-on-accumulation-unit/

Apologies if I have misunderstood.

No, my misunderstanding. Fortunately III does issue a tax certificate every year which shows these dividends...

Perelandra

gunjin wrote: »

Yes, that is their new policy from July this year. What I am trying to ascertain is whether they have always done this or always retained the trail commission for themselves. I suspect the latter which means there has been a substantial opportunity cost for staying with III all these years.

Ah. This I have no idea about, sorry.

EDIT:

Just spotted on this:

http://www.candidmoney.com/actionplans/actionplan3.aspx

At the time that that was written, iii were not rebating any of the trail commission.

gunjin wrote: »

I'm not sure what you mean by platform in the above reply. Is that the initial charge?

Nope, not the initial charge- pretty much all discount brokers refund all of the initial charge now, so I tend to ignore that completely.

There are two separate commissions that a fund pays out:

A trail commission paid to financial advisors/brokers. Typically (say) 0.5% p.a.

In additional to the trail commission, there is also a platform commission paid to the supermarket that actually "holds" the fund. Typically arund 0.25%.

Many of the brokers that you buy funds through refund part or all of the trail commission. AT do refund part of this, and as a result I think in pretty much every case I found AT had at least as high a rebate as the other brokers.

[STRIKE]However, they do charge an annual fee (which many other brokers don't)[/STRIKE]
They charge a dealing fee for buying/selling- INCLUDING FUNDS (which many others don't).

EDIT: Strikethrough part doesn't apply to you, I just realised your funds are unwrapped. AT's annual fee is for SIPPs and ISAs only.

gunjin wrote: »

Also, I am not after anything other than the cheapest long-term home for these funds. I do not use nor value any advisory or research tool-based value added services discount brokers may provide and often use to justify regular account charges.

For £100k+, and a one-off purchase probably AT will be cheaper than CO and iii, if the charges made by the two companies stay as they are today- if the funds you invest in are actively managed funds.

The last bit in italics is important, as passive funds tend not to pay trail and platform commissions, and so AT will work out more expensive for these.

Things may well change though, so sadly we can't be sure that the brokers will keep the same charging structure.

gunjin

Thanks very much for all your help Perelandra.

I will be hit by a £225 exit fee in leaving III but it looks like I will make this back from the higher refund rates and lower/no annual fee from either AT or CO.

The only question I have is, where does AT indicate they refund the platform fee as well as the trail?

Perelandra

I had a quick look, bt couldn't find that explicitly stated on the Alliance Trust website itself (although a number of comparison articles on other sites do confirm this).

Probably the most comforting way to check would be to compare the rebates that AT give:

http://www.alliancetrustsavings.co.uk/pdf/list-of-funds.pdf

(final column) with other providers that offer a full trail rebate, and you'll see that there is a genuine difference, of about 0.25% (in line with the platform).

The key thing to remember, though, is that the RDR is likely to cause a number of brokers to change their charging structures. The rebate that AT give today, for example, is likely to come down as a %age post-RDR. My interpretation is that:

Brokers who rebate a high percentage, but level an annual charge are likely to see a reduction in the rebate.

Brokers which do not rebate commission, but do not charge an annual fee, are likely to see a movement towards a fee system.

So any gains you might make from moving from iii to another broker might, sadly be time-limited (so bear that in mind when considering the cost of moving).

gunjin

Interesting food for thought...