DIY Investment PlatformsWritten on March 12, 2014 by Kirk Rice LLP
Financial Services QuestionsThe Question:
I notice changes to the fees DIY Investment Platforms will be charging come April, particularly Hargreaves Lansdown (discussed on Radio 4 Money Box) will rise or change. Do we need to hold investments, particularly ISA’s with these Platforms or could we do it ourselves to save fees.
Kirk Rice LLP answers:
To start I will briefly give an example of the charges that may have applied to an investment prior to 31st December 2012 if you invested directly with a Fund Manager. They would often have an Initial Charge of 5% which based on a £10,000 Investment would equal £500. They would charge an On-Going Fund Management Fee and 1.50%pa would not be untypical.
If you used an Adviser 3% of the Initial Charge c£300, along with c0.50%pa of the Management Fee would be paid to them in the form Commission. If you did not use an Adviser the Fund Manager would retain the Commission. You could have invested with the Fund Manager via a Platform which effectively gives you one place to hold and manage your investments. It will also give you access to other Fund Managers, and over 1000 Funds.
The charges will broadly be as above although the Platform will often negotiate Discounts off the Fund Managers Initial Fees. The Platform would also receive some of the 1.50%pa Fund Management Fee as a Commission although unlike the Adviser Commission the amount was unknown. You may have invested directly with a Platform or Fund Manager in the belief that as no Adviser was involved the charges would be lower; but in fact they were often the same.
This has changed for Advised business since January 2013 as Advisers can no longer be paid a Commission for Pensions & Investment Advice, we must charge a Fee. But Non Advised Sales (as would apply to DIY Platforms) can still be paid Commission this will however also cease For Platforms as of April and their fees will have to be Transparent. It will then be clear what you are paying the Adviser, Provider/Platform and Fund Manager, but broadly the combination would come out at c1.50%pa. The Platform will need to make money in order to continue in business and going DIY means you will have to pay their Charges.
The alternative would be to cut out the Platform and/or Adviser and go direct to a Fund Manager but this may not necessarily be cheaper as you will not benefit from the discounts the Platform could negotiate (due to volume). It will also mean that you may end up dealing with a number of Fund Managers rather than one Platform.
If you would like more advice regarding this issue or any other financial services matter, please contact us.
If you would like to receive Kirk Rice’s Financial Services Questions regularly by email, simply email info@kirkrice.co.uk stating Financial Services Questions in the subject heading and we will add you to our distribution list.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. There is no guarantee that your new pension or pension fund will outperform the ceding/old pension scheme(s).
The value of investments and income from them may go down. You may not get back the original amount invested. Some funds will carry greater risks in return for higher potential rewards. Investment in smaller company funds can involve greater risk than is customarily associated with funds investing in larger, more established companies. Above average price movements can be expected and the value of these funds may change suddenly.
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