Investing in funds: beware the hidden costs

No doubt this will cause a rush of comments like "I never invest in funds only ETFs" etc. However, are saying is that no one should ever invest in a fund of funds? If not which ones have a good track record.

Try Jupiter Fund of Investment Trusts - yes, charges are high, but performance is pretty consistenly top quartile. It does well in rising markets when discounts on ITs are narrowing.

I have a couple of fund investments with Hargeaves Lansdowne. These are so-called "Accumulation" funds.

Sadly I am never informed what dividends my investment has accumulated.These are simply not revealed in the staements they send us or we print-off from their screen account service. When I called and asked, I was finally informed by a lady on their Vantage Helpdesk after an eternity on "hold" & no doubt after checking a senior source, that I ahd aben paid about 30 pounds by one fund, yet this was never revealed to me before! And now I know this, where is the 30 pounds - do they hold it or re-invest it or what?

Neither are precise charges set-out in these statements as to what I have paid in the form of actual money to them for their (HL) charges and the funds precise charges (not just nominal percentages!)

All of this smacks off a little distrust for these people that I am building up and has stopped me from re-investing any further with them so far! Yet they pass them selves off as "holier than thou" low cost organisation fighting for the little man!!! I clearly have real doubts!

Any real alternatives who are truely honest in the charges levied?

Beamtree, I have had similar experiences at HL, and there is a simple soution. I now only purchase Income units in the various funds I have with them, and tick the "automatic reinvest income" box.

Every quarter, (or whenever divs are paid), in the "cash" and "transactions" tab of my account, I can track exactly how much I have been paid, and when. By cross referencing against the Dividends record of the funds in Trustnet, I can check excatly what I should have and what I have actually been paid.

Sounds a bit of a bind, but I can confirm that since starting this, all payments seem to be accurate. Of course, what individual fund managers do in the way of creaming expenses off the top of individual funds is unknown!

Beamtree: this is all done at the fund level and very much standardised (UCITS etc.), H+L have nothing to do with this really, and it will be pretty much the same with other institutions. It's included and reflected in the price of the units. I very much doubt there's anything dodgy going on there. It also shouldn't make a difference to you cost-wise. If you want more transparency, go for income units.

Beamtree, (and Nigel)

For accumulation units of a OEIC or UT, the income is invested by the managers and it should not be necessary to get it paid and then reinvested by the IFA as suggested by Nigel. Also there may be other hidden charges.

Have you looked in your end of tax year "Schedule of Unit Trust Dividends" ? You should find the accumulation units reinvested income there (or that's where they put mine). Also it should be included in the "Consolidated Tax Statement".

HL publish their OEIC and UT fund initial discounts which are usually the whole lot, and refund at least a little of the annual charge as a "loyalty bonus". They keep this in a separate account and you have to ask them to transfer it to your vantage and fund accounts or directly to you as cash.

I use HL for keeping my shares and OEICs and find their service very good, but intend to transfer my share ISA accounts and ordinary shares to a self select online broker when I can find a decent UK owned one, which will save a few hundred ££ a year.

The reason for this is that HL charge 0.5% of value capped £200 p.a. on ISAs, and £25 per deal for buying and selling shares, which is more than twice as much as several other Companies offer.

What price for service and convenience? The choice is ours.

Another good Citiwire Article!

Investment Trusts are not promoted by IFAs of course because they dont give commission (which we pay for). This is not a recommendation to use all ITs though because there are some excellent OEICs, and one has to pay something for good management. Its just seeing the wood from the trees.

Why pay someone else to lose your money for you in the first place when you can do it yourself? And it's not as hard as they make it sound because you only have to get it 51% right to be on the winning side when you think about it! Just make sure that you've got enough to get an adequate spread before you start. (OK, if you don't understand that you'd better pay their fees.)

OK I HAVE JUST ARRANGED TO TFR MY 500K PORTFOLIO OF UNIT TRUSTS FROM HARGREAVES LANSDOWN TO ALLIANCE TRUST SAVINGS IN DUNDEE.

I AM RECEIVING UNDER £1000 IN LOYATY BONUS FROM HL BUT MOVING THE PORTFOLIO TO ALLIANCE TRUST SAVINGS MY LOYALTY BONUS WILL BE OVER £3500.

HAVE A LOOK AT THE SITE AND LOOK FOR THE FUND LIST, THIS GIVE THE DISCOUNT AND REBATE.

LET ME KNOW WHAT YOU THINK.

GH ER

Let us now how it works in practice. Unfortunately, ALLIANCE TRUST SAVINGS platform is not as inclusive as is that of HARGREAVES LANSDOWN (e.g., it does not include several of my favorite funds / managers (inc. most First State and all Unicorn and MFM funds), and the list of ITs isn't so inclusive either). Still, it looks pretty good, the dealing charges on equities are certainly lower, and the rebates are better than HL, so I shall certainly consider it.

Incidentally does any one know if you can transfer money from a Building Soc cash ISA into a stocks and shares ISA (say with Hargreaves L) and then use the money to buy funds etc or does it have to stay in cash once it's in an ISA?

Take a look at Trustntet and tell me if you can accurately decide what the costs are from the information provided by the fund. It's disgraceful.

Dennis

Yes you can do that. Just remember that you cannot transfer back to a cash ISA once you've converted to a S&S ISA. Just make sure you get the S&S ISA fund provider to arrange the transfer, otherwise the new investment will not be ISA wrapped

I have used Alliance Trust Savings for twenty years. It charges for items of service, not a percentage of your savings. It has increased its range of investments available over the years - adequate for most savers. It is owned by Alliance Trust, an investment trust.

GHER. You are right. Have looked at small print and Alliance seems to give a much better deal . Disadvantage as you say is not all funds are offered, and UK shares only.

Thanks, am now going to seriously consider them as complete transfer. Annual rebate about double of H-L, and dealing fees very low especially if one buys Alliance Trust shares. I read Alliance IT is trying to address poor performance and discount problem so may be a reasonable long term buy anyway.

However have no real complaints about HL, their customer service and research are good, only their charges are a bit higher than they could be especially for larger customers and shareholders who should be cultivated.

Maybe one just pays for what one gets in the end.

What do others think?

SiPPDeal say they are going to offer ordinary dealing accounts this year and also may be worth a look later this year or early next.

Where can you find the TER of funds. There seems to be no definitive way of finding out costs of funds/ITs. I've seem different TERs for the same fund. And I guess they are never consistent anyway.

I use Portfolio Builder at iii to invest in shares/ITs in an ISA. It works for me.

Tony N. re individual shares 17/1238. Agree could be theoretically better, but we need a lot of skill (more than I have) to consistently beat the market and not lose money when buying all individual shares. I find ITs and OEICs particularly useful for overseas areas where research difficult and having a load of (small) overseas holdings a tax nightmare.

AndyB, see HL website "Fund Research and Discounts", look up the fund and then "key features". Don't Citiwire also have this information ?

Perhaps we are moving into a time when there will be more competition and H-L will bring their charges down. Does anyone know what proportion of the market H-L have? I have used them for a few years and their service is very efficient and hard to fault.

I noticed in the weekend FT that one of the H-L Directors has just sold £58M worth of shares although he still has 95.5 million shares left.

Alliance Trust site now carries 12 Vanguard Funds -Trackers-available for purchase-funds where TERs mean what they say!

I transferred a S&S ISA from Jupiter to Alliance and was disappointed with the attitude of the staff and so on principle i will not move any more money to them. Allenbridge are usually quite helpful.

I have been with Alliance Trust Savings for many yyears and always been able to get straight through to a member of staff and invariably found them knowledgeable and helpful.

GMT

Can anyone tell me where to find the TER s of Investment Trusts; I can never find them on Trustnet?

The TER of an investment trust can be found in the annual report and accounts,and it is usually-not always-lower than a similar UT or OEIC.

I have Stocks & Shares ISAs with both Alliance Trust Savings and Hargreaves Lansdown (from different years!) Neither makes any annual charge. Both refund initial charges on Funds, and a proportion of continuing loyalty bonuses to offset annual charges. Each has its advantages. H-L is cheaper, making no charge to sell a fund, for example, but you can never be sure when the sale (or purchase for that matter) will be executed. In can be at the current (i.e. already published) price, or it can be at the next valuation or the one after that. ATS charges £12.50 per fund transaction, but undertakes to deal at the next valuation provided the order is placed at least one hour before valuation time.

Churning of investments within a fund happens far too much, keeping a lot of middle-men in Porches and yachts. For this reason I prefer Investment Trusts to funds because they tend to buy and sell less often. Also charges made by a a fund manager and applied within the fund, for example the iniquitous performance bonus, are a "heads we win, tails you lose" operation. If the fund beats its benchmark by 10%, rewarding its manager by a fifth of the gain (2% of your money), you don't mind too much. But if the next year it under-performs by 20% the manager pays you nothing back. Then in the third year it might beat the benchmark by 10% again, and the manager extracts another 2%.

I had a significant sum with Hargeaves Lansdowne and made a few enquiries re ADMINISTRATION of my accounts. Mr Hargeaves wrote to me and said they were not used to this in an exicution only service. I transfered all to Intelligent Money who rebate most of the initial & annual commissions. Thank you Mr Hargeaves!

It was interesting to read about Hargreaves Lansdown and Alliance Trust and it has prompted me to warn everyone about Co Funds whose operation brings to mind words and phrases like "sharp practice" "dishonest" "Buck Passing" As you can probably tell I am not satisfied at all.

Peter is right about Hargreaves Lansdown funds dealing – it can take several days for a sale and purchase to be completed. Now this, though irksome, is no big deal in normal circumstances, but it would prevent you from acting promptly in response to an alarm. So on that score, Alliance Trust is preferable even with the fee.

HL's share dealing service, however, is very sleek and efficient, and fairly priced if dealing outside an ISA. But for no very obvious reason, they charge much more to deal shares within an ISA, and won't allow you to link ISA dealings to an Active Trader non-ISA share account. Given that this is on top of the 0.5% per annum they charge simply to hold shares in an ISA, it is very off-putting.

So I've been driven back to Barclays for my shares ISA. Dealing is reasonably priced and slightly simpler than with HL, and their on-line info about shares is more comprehensive, but transferring ISAs in has been a long drawn-out process (though not sure this is all Barclays' fault – Lloyds seems very reluctant to let go!). The downside is that Barclays then bombards you with time-limited offers for their rubbishy structured products...

Anonymous 1. I have just been reading the Intelligent Money website, they might give you the commissions back but they do charge you 1.5% of the portfolio per annum and you need a minimum of £100K transfer. So that's £1500 for a start or am I missing something?

Dennis, As an old costomer (with a significant investment) they do not charge the fee you indicate. Mr Hargeaves' (letter) timing was a bonus!

Owning 10,000 Alliance Shares in an ISA,SIPP etc entitles you to a dealing cost of £6.25 per deal

Peter Jason Taylor above - I thought that HL charged 0.5% capped at £200 for stocks in their vantage ISA accounts. ie the 0.5% is on the shares content but not value of OEICs as they have all the annual commission in the case of an ISA.

This plus the £25 dealing fee has put me off transferring any ISAs to HL.

When you add up the £200, plus no rebate on annual commission and £25 dealing fee ISAs with them are not cheap.

When I suggested to HL on several occasions the annual fee for ISAs was too high particularly for loyal customers and shareholders, they always refused and the last time were cheeky on the phone, so am going to vote with my feet when we all come to a conclusion on best composite providers.

Shame Alliance Trust has limited range. The £12.50 Alliance charge for buying OEICs is acceptable to me as tend to buy OEICs for longterm anyway.

As I said above, SIPPDeal may start a share account service later in year, but no details yet.

I think Natwest use the TD Waterhouse platform adding their extra fees.

Have discounted TDW and Selftrade as owned by foreign banks. I wish a UK provider offered a service like their's. I will look at Barclays again but am cautious as the UK banks are always looking to fleece their customers once hooked.

I have always found Bestinvest to be pretty good - but would be interested to hear if anyone disagrees and I have missed something.

HL may have been the one of the first exicution only brokers but there are now plenty who who provide a better/cheeper service.

Penny, Thanks, I guess they must be one of the best for those who only want OEICs, but some of us are looking for "wrap" accounts which cover shares and share ISAs as well, with reasonable charges.

Anon1, you are right, and they (HL) are shooting themselves in the foot by keeping particularly their ISA (and other) charges too high. This actually is contrary to their "mission statement" in their annual report.

I definately intend to move my account later in year and they are losing another customer as well as potential ISA business . Not that the directors will be worried as their success has made them all multimillionaires.

I continue to be amazed at how disorganised and opaque is the information around funds. I am also annoyed with the amount of money they can charge you year in and year out, whether they make money for you or not.

The second point is answered by simply screening out funds one deems too expensive.

But the first point is not so easily addressed. The default online information about a fund is usually that from Morning Star in the form of "performance" over 1, 6, 12, 36 or 60 months. Or the opportunity to look at a simple chart and compare it with a few more charts. You can't even plot a moving average. Historical prices may or may not be available at Google, MSN or Yahoo for download.

I conclude funds are a fool's game for the average investor. They only serve to line the pockets of the fund managers.