|Use this to dig out what your charges
The industry is there
to help you - at a price
Buying shares directly incurs costs. Buying shares indirectly (through
a unit trust or a structured financial product, for example) incurs
other costs. The whole process is (deliberately?) opaque.
Excess costs can trash your savings through
the mathematics of compounding.
Be sure you understand the extra costs of any investment before
you make it.
are the costs?
If you are buying investments (e.g. shares) they may be in a pooled
investment (e.g. a unit trust) and/or they may be parcelled up in
a 'wrapper' (e.g. an ISA). We use the generic term 'Pool' to describe
the pooling vehicle (not all costs will apply to all types of pooled
investment). The added costs may comprise any of the following:
- Initial Pool charges
- Exit Pool charges
- IFA commissions
- Buy/sell spread on the price of the Pool
- Brokerage fees on selling the Pool
- Stamp duty & brokerage fees on buying the
- Dealing costs on purchases/sales of shares
within the Pool. Portfolio
- Even higher dealing costs within a wrapper (you
will find that some brokers charge more for trading within an
ISA than they do for trading within a dealing account)
- Stamp duty (0.5%) on buying shares within
- Buy/sell spread on the price of shares within
- Annual Pool investment management charges
- Other administrative charges incurred by
the Pool (typically 0.2% - 0.5%)
- Annual wrapper management charges
- Dividend reinvestment fees (when the Pool treats
reinvested dividends as a new purchase and charges accordingly)
fees, (particularly insidious)
- 'Soft' commissions (when services such as
technical analysis are supplied 'free' to a Trust by a brokerage
in exchange for higher dealing commissions or guarantees on volume).
Phew! Anything else?
Yes, there's the little matter of renewal
commissions (also called 'trail commissions').
If you are paying, say, a 1.5% a year fund management
fee you might be comfortable with this high charge because you believe
you are buying exceptional expertise.
But what if you discovered that your fund manager
was rebating 0.5% to your financial adviser? So that only 1% per
year is being devoted to the management of your money and 0.5% is
paying for your seller's marketing costs. This 0.5% is the "renewal
The industry argues that so long as it is honest
about the amounts you are paying, why should you care who it is
being paid to?
Our view is straightforward. Unless this arrangement
is declared to you, this is a scam. The fact that it is legal doesn't
make it any less so. And the convoluted arrangements and nomenclature
to express something quite simple show that the industry knows it.
If you meet it, you know what to do.
Many funds will charge an initial commission
when you purchase direct, say 5%. The good news is that many intermediary
product providers will give you a discount on the initial commission.
But the bad news is that they may only do so because they are receiving
We repeat, we have no objection to these arrangements.
We object to their concealment, which continues to distort the cost
comparison between truly independent advisers and commissioned salesmen.