Sunday, 12 May 2013

Compare Fund Platforms & Brokers

I thought I would take a brief look at ways to compare the costs of the increasingly complex ways of holding investments.

My personal preference has been to hold a mixture of investment trusts and shares for the equity portion of my portfolio. However, many investors choose the simplicity of funds (OEICs) including the increasingly popular low-cost tracker funds.

With the introduction of the Retail Distribution Review (RDR) at the start of this year, the industry is moving to a more transparent way of charging which should be beneficial to retail consumers. In the past couple of weeks, the Financial Conduct Authority (FCA) has announced that from April 2014 all fund supermarkets and platforms will be obliged to explicitly charge for what they do rather than take payment in the form of commission and back-handers from fund providers. Some platforms have already moved to this new system of charging but the rest will be allowed 2 years to make the full transition.

Traditionally, part of a funds charges has been paid by the fund provider to the platform, say 0.25% to 0.5%, out of the typical 1.5% TER. As this will no longer be permitted, it should mean the charges for funds will be lower and it will create more of a level playing field between investment trusts (which have never paid commission) and low cost trackers. Indeed, some funds have already started to offer a ‘clean’ class of fund with the lower TERs (or ongoing charges).

Investors holding a portfolio of funds should now therefore check with their provider to see whether a lower charging ’clean’ option is available and whether their provider will move them over to the new class automatically.

Comparison Sites

Monevator has recently created a comparison table covering most of the popular discount brokers and fund platforms. The table is mainly aimed at diy investors seeking a passive approach to running a portfolio using mainly index funds and ETFs.

Compare Fund Platforms is a spin-off from Candid Money run by Justin Modray. You select the funds you wish to compare or may be interested in purchasing, confirm a few assumptions on period of investment and rate of growth (include the option of also holding shares and/or investment trusts also) and instantly see which broker currently offers the lowest cost. The site covers 3,500 funds. Although most of the main brokers are now on board, the results will not include Hargreaves Lansdown as they refuse to send the required data.

DIY Investor (a subsidiary of AJ Bell/YouInvest) offers a handy comparison tool to assess charges for SIPP, ISA or Dealing Account all of which can be refined according to investment amount, intended number of years and percentage of funds/shares etc. Well worth inputting a few figures to see the differing results between all the main providers.

The International Investor tries to simplify the process by listing only the cheapest broker for each platform. Just be aware that not all funds are available on all platforms so if, for example, you only require Vanguard tracker funds, the first check will be to see whether they are available on any particular platform/broker.

Hopefully, by using one or more of these comparison sites, the average diy investor will be in a position to work out the most cost effective way to build and maintain their chosen investment portfolio.

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