Online investment management service Nutmeg has compiled a list of the most common hidden investment charges to be alert to. We take a closer look at some of these.
Set-up charges
Although setting up an investment account does not always incur a fee, it can sometimes cost up to £500. Nick Hungerford, chief executive of Nutmeg says: "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-invested personal pension (Sipp) or an offshore bond."
Give me an example
Discount stockbroker iWeb hiked its one-off set up fee from £25 to £200 in March 2015 to set up a stocks and shares individual savings account (Isa), though its other fees remain very low.
Many DIY investment platforms, including Alliance Trust Savings, AJ Bell Youinvest and Hargreaves Lansdown, do not charge you to set up an account.
Inactivity fee
This charge is levied if you do not buy or sell for a specified period of time.
Give me an example
Broker Saxo Capital Markets charges a £25 inactivity fee per quarter if you have not traded in the previous quarter.
Platform fees
This is the annual cost of using an investment platform, and is also be referred to as an administration fee. Most platforms charge this annual fee. It can be a flat charge or a percentage charge on your total investments, and is levied annually or quarterly.
Give me an example
Hargreaves Lansdown charges a 0.45 per cent annual fee on the first £250,000 of funds, capped at £45 a year.
Custodian fee
Although most investment firms include this in their management fees, some don't, so be sure to check whether yours does.
Account changes
A charge levied for changing the details of your account. Mr Hungerford says: "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."
Cut on FX transactions
These are charges for currency transactions when buying and selling non-sterling investments, and are often based on a percentage value of the transaction meaning they can add up to very large amounts.
Rebalancing fees
The major benefit of using a discretionary investment manager is that they will re-align your portfolio to consistently fit with your risk appetite, meaning you don't have to constantly monitor your own investments. However some charge you for this process and it can be costly. Mr Hungerford says: "This is the 21st century and it should be an intelligently automated process."
Exit fees
No platform, broker or manager wants you to leave them, and many will hit you hard if you do. Some services pride themselves on not charging these but watch out for those who do.
Give me an example
Hargreaves Lansdown charges £25 per holding for transfers to a new provider. Interactive Investor charges nothing for transferring out up to 10 lines of stock from investment, Isa and Sipp accounts - but only for customers who have been with the service for under a year. After 10 lines of stock the platform charges £15 per line of stock.
Performance fee
This is a payment to the wealth manager if he or she makes returns above a certain level. Mr Hungerford says: "Surely this is the investment manager's job and what the standard portfolio management fee is there for?"
Product wrapper charges
This is a charge for holding a wrapper such as an Isa or Sipp and is often in addition to an annual platform fee. Barclays Stockbrokers waives its £30 (+ VAT) wrapper fee and charges a 0.35 per cent annual administration fee if investors choose only open-ended funds for their Isa, but investors pay both charges if they choose to invest in shares and funds.
Adviser charges
If you use an adviser, you will have to pay their fees in addition to your platform and/or stockbroker fees.
Are the fees reasonable?
Always try to identify all fees and build a picture of what you will be paying for your portfolio. Make a judgement on whether you think the fees are reasonable for the service you are getting. Nutmeg itself charges 1 per cent to manage portfolios of £1,000 but its fees reduce the more you invest with them - to 0.75 per cent for portfolios of £50,000 or greater and 0.3 per cent for £500,000 or greater. This may seem cheap but the underlying investments in the portfolios provided by Nutmeg are exchange traded funds, many of which are available for less than 0.1 per cent.
