If you want to invest some of your ISA allowance, you probably realise that you will have to pay some fees.
But new research from Nutmeg has revealed an incredible 20 fees that are often hidden away, which could make a dent into your returns.
Set-up or initial charge
This will cost up to 5% of your initial investment, a large chunk of money just to get you started.
This charge varies wildly in size, and is levied for not buying or selling assets in a specified period, for example each quarter.
This is a fee charged by platforms, based on the value of your fund holdings, typically of around 0.45%. As Nutmeg says, this is a “real brute of a charge” as it’s a charge the platform picks up for doing nothing.
Automatic dividend reinvestment
A fee for automatically reinvesting income received from investments. Some providers charge as much as 1% of dividends paid. Nutmeg argues this really should be free.
Broker charges and commissions on trades
Another one that can vary wildly, this is commission charged for buying and selling shares or other assets. These charges can be very opaque – ask your stockbroker how much you’ve paid in trading fees this year.
ISA transfer-out fee
[SPOTLIGHT]A charge for moving between ISA providers. Some providers take a large chunk of your money for what is a simple piece of admin.
A charge for holding investments in 'safe custody'. Most investment firms will include this in their management fees, but do watch out for those that don't, as it will typically set you back around 0.25%.
The cost of changing personal account details, such as your address, can also vary significantly. 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, typically around 1.6% of each deal. They can add up to a huge sum.
A fee for producing a year-end tax report, another that can vary sharply. Really this is an everyday part of the investment manager's job and should be included in the management fee.
This is a charge for re-aligning portfolios with investors' risk appetites and long-term goals. This should be automated, in this day and age.
A charge for quitting investments. Another fee for simply choosing to take your custom elsewhere, one more charge – typically around £30 – to squeeze out of you at the last minute.
This is charged if you manage to get returns above a market benchmark, and may be as high as 20% above the hurdle rate. Surely beating the benchmark is just an investment manager’s job and what the standard portfolio management fee is for?
Product wrapper charges
A yearly or one-off fee for holding ISAs or SIPPs. There is no rhyme or reason for this charge, which can vary in size significantly.
Fees charged by IFAs and intermediaries for advice, of around 1-1.5%. As Nutmeg says: "Investors find themselves trapped in a cycle of paying an adviser to tell them to use a platform or a stockbroker, who in turn charge them all of the above fees."
ISA termination fee
A fee for terminating an ISA within 12 months. Why should you be penalised if your life circumstances change?
Copy of paperwork
A fee for providing, say, paper copies of review statements. Given the size of some of the prices charged, printing must be very expensive at some investment firms.
Stamp Duty Reserve Tax
A government tax levied on share purchases of 0.5%.
This is a flat fee of £1 on all share deals worth over £10,000.
A market-maker's difference between the prices at which you buy and sell investments, typically around 0.2%. The cost is unavoidable, but it shouldn’t be hidden. Nutmeg says: “Your investment manager should always be seeking out opportunities for you that are cost-effective and don’t drag significantly on your overall returns."
Nothing but charges, fees and costs
Taken together, all of these charges and fees could gobble up as much as 5% to 10% of each £10,000 that you invest -- perhaps leaving you up to £1,000 worse off almost from day one. What's more, many of these fees are not one-off charges, but keep on recurring throughout the entire life of your investment.
As Nick Hungerford, Nutmeg's CEO, says: "No-one is advocating that investment managers shouldn’t charge. It’s only right they get a fair, transparent fee in exchange for a high-quality service. However, investing should be as simple as possible, and if people are putting their hard-earned money away somewhere, they should be able to see clearly what they’re paying for, rather than have to navigate a maze of complicated terms and conditions."