Are there less expensive options for our ISAs?
08 May 2018
Question by John
We have a portfolio of ISAs/ PEPs worth around £250k, currently invested via Cofunds, managed by Chelsea and Bestinvest. I'm told this is quite an expensive option regarding platform charges. Are there better options? I tend to ask for advice on the make-up of the portfolio about once a year and change perhaps 4 or 5 funds.
Answered by Helena Wardle
You do pay to use a platform, and this normally adds between 0.25%- 0.50% per annum to your annual charges depending on the value of your portfolio. However, if you regularly change funds, then platforms do give you access to a wide range of investments with one provider, and this would typically reduce the time of out of the market when you switch investments. It also reduces the administration for you to facilitate the fund switches.
If you held the investments directly with the individual investment companies/fund managers, switching would mean selling the investments and repurchasing new investments, potentially with a different company, to implement any changes. You would also need to action every switch as an ISA transfer to ensure you keep the ISA allowances that you have built up. Another consideration is that platforms often get rebates from fund managers which is effectively a reduction in annual charges for offering their funds on the platform. This has to be passed on to clients in full. You should see any rebates in the transaction history of your annual statement.
If you want to keep all of your investments together, you can as an alternative hold a number of investments with a discretionary fund manager without a platform, but this would also incur an annual charge. Another consideration is how involved you are in making the decisions on your investments. Do you get advice on any changes to your investment funds or do you select the changes yourself? Discretionary fund managers typically manage the money on an ongoing basis for you and clients are not usually that involved in the investment decisions that they make.
Your annual statement from Cofunds would provide you with a breakdown of your cost and charges each year, and this would show the yearly expense of using Cofunds, the funds and any additional management charges that you may be paying. You can then weigh up if you are getting value for the costs that you are paying. For a £250k portfolio, Boring Money identified iWeb and Interactive Investor as having two of the lowest platform and management fees. This assumes 14 transactions a year at £6,000 each. I hope this helps.