Don’t over­pay for your Isa

Sunday Express - - Your Projects Count -

YOU NEED TO keep a close eye on the fees and charges you pay for set­ting up and run­ning your funds, as these can qui­etly eat away at your re­turns. Many peo­ple these days in­vest in stocks and shares Isas via on­line fund plat­forms run by the likes of Al­liance Trust, Bestin­vest, Fidelity Fund­sNet­work and Har­g­reaves Lans­down.

These typ­i­cally save you money by waiv­ing the ini­tial in­vest­ment fund charge of around 5 per cent that you pay if buy­ing di­rect from the as­set man­ager, and also of­fer the con­ve­nience of man­ag­ing all your funds from a sin­gle site.

How­ever, pri­vate in­vestors pay al­most £500 mil­lion a year in hid­den plat­form fees, de­plet­ing their re­tire­ment pots.

The av­er­age in­vestor will lose £141 a year by fail­ing to us­ing the cheap­est ser­vice, and in some cases a lot more, ac­cord­ing to com­par­i­son site Bro­kerCom­pare. info, which lets you com­pare dif­fer­ent plat­form charges.

Di­rec­tor Stu­art Mill­son says even seem­ingly low fees can roll up over the years.

“Many peo­ple have no idea how much they pay in fees ev­ery year, and how much in­vest­ment growth they lose as a re­sult.” It is worth pay­ing a quick visit to Bro­kerCom­pare to see whether you have signed up to the best value plat­form.

You can per­son­alise your search ac­cord­ing to how much you hold in funds or shares, how of­ten you trade, and how long you plan to hold the ac­count.

Next, com­pare the an­nual man­age­ment fees you are pay­ing on the un­der­ly­ing in­vest­ment funds in your stocks and shares Isas. Look out for some­thing called the to­tal ex­pense ra­tio (TER), which adds up the var­i­ous fees so you can com­pare charges on dif­fer­ent funds.

You should be able to find this on your plat­form, or by search­ing for funds on sites such as TrustNet. com or Morn­ingStar.co.uk.

If you in­vest £10,000 in a fund with a TER of 1.5 per cent and it grows at 5 per cent a year you should have £19,898 af­ter 20 years. How­ever, in a fund with a lower TER 0.5 per cent you should end up with £24,117, as­sum­ing the same growth, giv­ing you an ex­tra £4,219.

Thanks to com­pound in­ter­est, the ben­e­fits of find­ing a cheaper fund ac­cel­er­ate over time. Af­ter 30 years you would have £28,068 on the more ex­pen­sive fund but £37,453 on the cheaper al­ter­na­tive, a dif­fer­ence of £9,385. Clearly, charges mat­ter. Fig­ures from Ci­tyWire.co.uk show that some top-rated man­agers with strong past per­for­mance can also of­fer some rea­son­ably priced funds.

Royal Lon­don Short Du­ra­tion Credit, for ex­am­ple, which in­vests in UK gov­ern­ment and cor­po­rate bonds, has a TER of just 0.33 per cent.

Terry Smith’s hugely pop­u­lar Fund­smith Eq­uity has a TER of 0.97 per cent, while Nep­tune In­dia charges 1.01 per cent and TB Amati UK Smaller Com­pa­nies charges 1.02 per cent.

Ex­change traded funds (ETFs), which pas­sively fol­low a bench­mark in­dex, are your cheap­est op­tion.

For ex­am­ple, iShares Core FTSE 100 In­dex has a TER of just 0.07 per cent, which would turn £10,000 into £42,363 af­ter 30 years, as­sum­ing 5 per cent growth be­fore charges, an in­cred­i­ble £14,295 more than a fund with a TER of 1.5 per cent. Van­guard S&P 500, which tracks top US stocks, charges 0.15 per cent. Justin Mo­dray, di­rec­tor of Can­did Fi­nan­cial Ad­vice, says too many in­vestors fail to look at plat­form and un­der­ly­ing fund charges, and their in­de­pen­dent fi­nan­cial ad­viser’s fees if they use one.

“You need to check the to­tal an­nual cost of ad­vice, plat­form and fund charges com­bined. If they ex­ceed 2 per cent alarm bells should start ring­ing, and you should aim to pay a lot less on larger port­fo­lios.”

Si­mon Massey, wealth man­age­ment di­rec­tor at MetLife UK, says savers should also check the in­ter­est on their ex­ist­ing Isas and look to trans­fer to a bet­ter deal. “Thanks to low in­ter­est rates, the need for Isa trans­fers has never been stronger.”

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