How broker fees can deplete your nest egg
PRIVATE investors are losing almost £500million every year in hidden fees on broker platforms, depleting their savings and retirement pots.
The average investor will lose £141 a year compared to using the cheapest service, according to figures from a comparison site that launches today called BrokerCompare.info.
Over a 20-year investment period this adds up to a startling £5,300 in excessive charges and lost investment growth on that money, while investors with larger portfolios may lose much more.
This makes the task of saving for retirement even harder as your nest eggs are being raided by fund stockbrokers and online fund platforms.
Director Stuart Millson said BrokerCompare lets ordinary investors compare broker charges for the first time: “Many people have no idea how much they are paying and how much investment growth they lose over the years, because they could not compare what different companies charge.”
The site allows you to compare the cost of investing in a tax-free individual savings account (Isa), self-invested personal pension (Sipp) or standard trading account.
It covers a range of brokers, including AJ Bell, Alliance Trust, Barclays, Bestinvest, Halifax, Hargreaves Lansdown, HSBC, Interactive Investor, Selftrade, TD Direct, The Share Centre and Willis Owen.
You can personalise your search according to how much you hold, how often you trade, and how long you plan to hold the account. The difference in annual charges can be shocking and it compounds the longer you invest. The site shows that an investor with £50,000 in funds and £20,000 in shares, who trades eight times a year over 20 years, pays just £48 a year with Halifax-owned IWeb-ShareDealing.co.uk.
That rises to £89 a year with Interactive Investor, and £119 with Halifax or Bank of Scotland. Others charge more than £300 a year, while Hargreaves Lansdown, one of the UK’s most popular platforms, charges £463 a year.
Millson said this suggests the market is not functioning properly: “Our comparisons should encourage more investors to move on, which should help to force prices down across the board.”
BrokerCompare’s figures cover a range of charges, including share dealing fees, upfront charges, and quarterly or annual administration fees.
However, Danny Cox, spokesman for Hargreaves Lansdown, said it fails to compare the annual management fees on underlying investment funds: “We partially rebate these to customers on our Vantage account, giving them large savings that they may not get elsewhere.”
He added that cost is not the only consideration: “Our customers also value our award-winning client service, investment research, discounted funds and choice of investments.”
Damien Fahy, founder of personal finance site MoneyToTheMasses.com, said costs can have a huge impact on your eventual investment returns, so you need to know exactly what you are paying: “I am pleased to see a company finally taking the comparison site model and applying it to fund platform pricing.”
He added that because the site does not cover every charge and rebate, you should take this as a starting point and do further research.