Understanding exactly what you’re paying for - Advice and Investment Fees

Please be aware the below blog is older than 12 months, therefore the information may not be relevant or up to date.

If you’re thinking about taking financial advice in order to invest, it’s essential to look at all the associated costs over an investment’s lifetime rather than just the cost of advice as different providers often package their costs differently and you could end up paying more than you necessarily need to.

There are three main costs to consider:

1. Cost of Advice
2. Cost of Investment
3. Cost of Platform ( or product)

Of the 3 fees, only the cost of advice (both initial and ongoing) needs to be clearly explained at outset by the adviser. The cost of investment and cost of platform will be covered later, during the advice process. However, by the time you get to investment analysis and illustrations you are already a long way down the process, so like for like price comparisons on product and investment costs by different advice channel is almost unheard of.

Many people do not realise there is such a wide price variation on investment and product costs. It is possibly for this reason that some advice providers push ‘advice’ costs into investments and products.

You would most likely not opt to use an adviser who suggests a 5% advice fee, yet may hardly notice a 5% bid offer cost rolled in to the setting up of an investment. In fact, the largest advice provider¹ in the UK uses a 5% bid offer spread on their investments to cover the cost of advice. Against our initial advice fees of 2% on the first £150,000 and 1% thereafter for normal investments.

Large advice providers like Quilter generally get discounts on investment management annual fees. Passing these discounts on to clients is one of the many advantages of using a large advice provider. Unfortunately, not all large providers pass on the discounts, some even go as far as to actually charge their clients more than the regular investment cost.

Providers can hide these additional fees via ‘mirror funds’. These look like a normal investment funds, but generally have additional fees. They will have a slightly different name to the original fund. For example, Sanlam mirror many large investments companies’ funds with ‘SIP’ at the front of the fund name; Fidelity Global Special situations becomes SIP Fidelity Global Special situations. The funds are fundamentally the same, however cost of investment increases from 0.92% pa to 1.66% pa²!

Ongoing investment costs whilst seeming small can in many cases over the lifetime of your investment be the largest cost of all and have the biggest impact on overall investment returns.

Finally, platform or product costs vary greatly, so are definitely worth researching. Ginkgo Financial’s preferred platform provider charges users £450 pa on a £250,000 investment whereas Hargreaves Lansdown³ charges users £1,125 pa on the first £250,000 for using their investment platform without advice! The difference at a £1m is even greater with our preferred platform charging £789pa to Hargreaves Lansdown’s cost of £3,000 pa!

Having a better understanding of each of these fees puts you in a much better position when comparing products and providers. Ginkgo Financial prides itself on providing transparent fees, low-cost access to investments and of course great advice! For more information or to request a copy of our fee structure simply give the team a call.

By Daren Wallbank Chartered Financial Planner

References

¹ https://www.sjp.co.uk/charges
² https://markets.ft.com/data/funds/tearsheet/summary?s=gb00b8ht7153:gbx (see ongoing charge)
³ https://www.hl.co.uk/investment-services/isa/savings-interest-rates-and-charges
  https://markets.ft.com/data/funds/tearsheet/summary?s=GB00B1JQ9V94:GBP (see net expense ratio)

THE VALUE OF INVESTMENTS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.