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Holly's Blog: Fees are falling - are they falling for you?

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I had lunch with a self-described ‘dinosaur’ not so long ago, who reminded me that twenty-five years ago it was not uncommon for people to phone up their stockbroker to make any trades, and face charges of about £100 a pop for the privilege.

Costs are certainly falling across the board.

Cheap ways to drip feed in

I looked at some options this week for people who want to drip feed into the markets, using the lowest-cost ways possible to access mainstream investments. The iShares FTSE 100 ‘ETF’ (Exchange Traded Fund) is bought and sold like a single share but is just a mixed bag of every company in the FTSE 100, held in proportion to their size and packaged up as a single product for convenience. This costs 0.07% a year. If you want to buy a similar fund, the Vanguard FTSE 100 Index fund costs 0.06% a year. To be more helpful, this means you’ll pay 70p or 60p in investment charges for every £1,000 you hold. Can’t really argue with that.

So, if you invest by drip-feeding say £50 a month into these low-cost investments, you could hold this account – which would be about £600 by the end of the year – for total annual costs of about £2.90 on Hargreaves Lansdown (no fee for fund trades) or £19.70 on AJ Bell (a £1.50 fee per fund trade plus account admin fee).

Because Interactive Investor has a fixed account fee of £9.99 a month, it’s too pricey for these smaller accounts. But think what happens if that £50 goes up to £5,000 a month, for example. Low cost newcomer Freetrade (no fees for trading if you’re happy to have your shares bought en masse with everyone else’s at the end of the day) would cost you about £60 all-in in Year One, as you built a sum of £60,000. That’s for the product, the ISA and the admin. Interactive Investor would cost about £140 all-in. And Hargreaves Lansdown clocks in at £290.

The point I make is that this is a competitive market and things change. It’s bloody hard to categorically point to any one provider which is universally good for everyone and it really is horses for courses.

Why can’t it be simpleeeeeeerrrrrr!!!!

Sadly it’s a bit like dealing with phone plans. But, take heart, there is a small light at the end of the tunnel! Our independent investment charges calculator will do the heavy lifting for you and give you comparative charges for major providers. If I tell you that the difference in annual administration fees for a £200,000 portfolio split between pensions and ISAs is nearly £1,000 a year, I’d suggest it’s worth everyone having a quick squizz and asking if you’re in the right place for your money?

DIY pensions versus advised pensions

As further food for thought, we’ll be doing more to look at the costs of advice over coming weeks, which can be horribly opaque. We’ve looked at the costs of a £1 million pension portfolio, held over a 25-year period. The cost differential between the lowest-cost DIY portfolio and the highest-cost advised portfolio (invested in broadly similar stuff) is £470,000. Now it may well be that the benefits of advice are worth it. But I grow increasingly impatient of an industry which blethers on about Value without helping people to articulate the Price – obviously a key factor in any value equation.

Woodford Update

Finally – for anyone with money in the closed Woodford Equity Income fund, this letter was published today by the people in charge of the wind-up. Gives you some dates and idea of when to expect payments back – the first dismal pay-out will be circa the 30th January.

Have a great weekend everyone. We’ll probably have a less stressful one than the Queen, who continues to manage the ‘youth of today’ when she must just want to stand on the Palace roof and scream! Makes my family look positively functional and lovely ;0) x

Holly

P.S. As always, when illustrating a point, there are assumptions made. Actuaries will be dying to write to me to observe the intricacies of maximum annual ISA allowances, time-weighted returns, ETFs and argue that the FTSE All Share is a better all-rounder than the FTSE100. Let me save you the bother. You are right and I agree! But we haven’t got all day…

P.P.S. If you do plan to slowly amass and drip-feed in, do check the transaction costs. Many platforms do not charge for fund trades (or charge less than for shares). It will typically be better for those with smaller amounts to use funds, not ETFs, but check the specific details of the transaction fees.

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