The start of a new tax year means a fresh set of investment allowances, and with the ability to invest £11,880 in an individual savings account (Isa) now, and top that up to £15,000 from 1 July, you may well be looking around for opportunities. However, even if you choose good funds, high charges can detract from performance, and according to online investment manager Nutmeg, investors face no less than 19 - before making a penny on investment returns.
"The investment industry has worked very hard to ensure that charges are as opaque and confusing as possible," says Nick Hungerford, chief executive of Nutmeg."All too often investors are left in the dark about what they're actually paying. We've identified 19 common hidden charges that today's investors must be aware of – and get clarity on – before they hand their money over to someone with a vested interest in confusing them."
These are as follows:
| Charge | Nick Hungerford comments |
| Set-up charges | This is usually a percentage of the initial investment and can be around 5 per cent, which is a big chunk of money just to get you started. These charges are particularly apparent when investing through a wrapper such as a self investment personal pension (Sipp) or offshore bond. |
| Inactivity fee – a charge for not buying or selling for a specified period of time | Madness. You are often charged for trading anyway (commission) so this damns you if you do and damns you if you don't. |
| Platform fee – charged against the value of fund holdings | This is a real brute of a charge. Often there is no management or any proactive work for the customer in return for this, it's just a charge that the platform picks up for doing nothing. |
| Auto dividend reinvestment – charge for automatically reinvesting any income received from investments | This should be free. Little charges like this can be barely noticeable in isolation but quickly add up to a larger sum when there's lots of them. Beware that some large providers charge as much as 1 per cent each time. |
| Trading, broker charges and commissions | These charges are incurred when trading investment assets and are often very opaque. As a guide, ask your stockbroker how much you have paid in trading fees this year. |
| Isa transfer out – charge for moving an Isa from one provider to another | A simple admin charge may be fair enough but some providers take a hefty slice of your money as you go through the exit door in search of a better service. |
| Custodian fee – charge for holding an investment in safe custody | Most investment firms will include this in their management fees but do watch out for those that don't. |
| Account changes – costs for changing details of account | In this day and age, it's really not difficult or costly to simply change a customer's account details. This is an antiquated way of sucking up additional revenue. We are not still operating with feathers and ink, are we? |
| Cut on FX transactions – charges for a currency transaction when buying and selling non-sterling investments | Foreign exchange charges are often based on a percentage value of the transaction and can add up to a huge amount. |
| Rebalancing fees – charge for re-aligning portfolio with an investor's risk appetite and long terms goals | Again, it is the 21st century and this should be an intelligently automated process. |
| Exit fee – charge for leaving | Like the Isa transfer out, this is a fee for simply choosing to take your custom elsewhere. One more charge squeezed out of the investor at the eleventh hour. |
| Performance fee | This is an additional payment made to the wealth manager for good returns – usually a given percentage of investment profits. Surely this is the investment manager's job and what the standard portfolio management fee is there for? |
| Product wrapper charges (annual or one off) | Investors are charged simply for holding a Sipp or Isa. There is simply no rhyme or reason to this charge. The customer gets nothing extra in return. |
| Adviser charges | Investors find themselves trapped in a cycle of paying an adviser to tell them to use a platform or a stockbroker, which in turn charge them all of the above fees. |
| Fee for terminating Isa within 12 months | Life circumstances can change. It's unavoidable. Although it's better to hold an investment over the long term, why should you be penalised if you don't hold your Isa for 12 months? |
| Copy of paperwork | The high prices I see for this, and the long lists of items, makes me think printing must be very expensive at some organisations. |
| Stamp duty reserve tax | This is currently 0.5 per cent and applies to purchases of mainland UK registered companies that are UK listed (but does not apply to ETFs, Oeics, gilts, debentures, loan stock and offshore companies that are UK listed). |
| PTM Levy | This is a flat rate charge of £1 on all trades over £10,000, collected by the Panel on Takeovers and Mergers. |
| Bid-offer spread cost - the difference between the price at which you can buy and sell an investment | This cost is unavoidable but it certainly shouldn't be hidden. Your investment manager should always be seeking out opportunities for you that are cost effective and don't drag significantly on your overall returns. |
