Costs have a big impact on returns, with half a percentage point of difference in fees adding up to a significant sum over the course of a decade. You can reduce what you pay by picking a cheap platform that matches your needs and investing a portion of your portfolio in passive funds. But also look to see what a fund's different share classes cost, because the same fund can be cheaper on one platform than on others, depending on which share classes they offer and any discounts available.
Hargreaves Lansdown (HL.) consistently offers discounts on funds, including a few popular ones. For example, Baillie Gifford Managed (GB0006010168) has a 0.25 per cent ongoing charge through Hargreaves compared with the usual 0.43 per cent, and LF Lindsell Train UK Equity (GB00BJFLM156) is available at 0.49 per cent rather than 0.64 per cent. Fidelity also offers a few funds at a lower price, including Liontrust UK Growth (GB00B56BDS09) at 0.73 per cent as opposed to 0.83 per cent.
However, Hargreaves is otherwise an expensive platform via which to invest in open-ended funds, charging 0.45 per cent a year on the value of the first £250,000 of funds held within an individual savings account (Isa). The discounts on single funds do not necessarily make up for it, and dealing and platform fees as well as quality of service should generally be more important considerations when picking a platform. Fund discounts often come as a rebate and can be taxable if the fund is held in a general investment account rather than an Isa. And discounts tend to be more common on funds that were more expensive in the first place.
Bestinvest sometimes gains access to low-cost “founder” classes via the wider Evelyn Partners group, for example if it invested early in a fund. Examples include the F share class of TB Evenlode Global Income (GB00BF1QNR90), which costs 0.55 per cent instead of 0.84 per cent for the B share class (GB00BF1QNC48). Meanwhile, AJ Bell (AJB) does not have any discounted fund classes and Interactive Investor only in a few cases.
If you have funds you have held for a long time and not checked recently, make sure you own the cheapest available share classes. Fidelity, for example, says some of its users still hold retail share classes, which usually have higher costs and lower minimum investment levels. Platforms can buy cheaper institutional share classes, because by pooling together all customer money directed towards these funds they can meet the higher minimum investment levels. They can then sell on these institutional share classes in smaller chunks to their customers. This means that retail classes are not widely used anymore.
While Fidelity only offers the cheapest classes for new investments and lump sum contributions, standard retail share classes “remain open for regular savings plans so as not to disrupt the customers’ ongoing investment instructions”, the platform says. However, you can switch your holdings to a fund's cheaper share class at any time.
You may also still hold some ‘legacy’ share classes, which were more expensive because they paid commissions to intermediaries such as financial advisers and investment platforms. In most cases, retail money held in those share classes was transferred to their ‘clean’ equivalents years ago. But research firm Fitz Partners says that about a quarter of all retail assets in the UK are still held in legacy share classes, which could be because they are included in products that are discounted in other ways.
DIY platforms usually make the switch automatically, including if you transfer in assets from elsewhere. But Hargreaves says there can be exceptions, for example, if you hold a fund that is domiciled outside the UK. “Fund conversions are not possible for non-UK-domiciled funds, and we make clients aware they can switch to the newer unit class for free,” the platform explains.
