Investment fees: setup charges, trading charges, platform fees and more
These investment fees can have a huge impact on your returns over the long term.
When you’re looking for a great place to invest your money, it can be easy to focus on the returns and gloss over the fees.
But, over time, even a small difference in the fees you pay can put a big dent in the amount you might get back.
Know what to expect
Fees can range anywhere from around 0.5% a year to an incredible 5% in some cases.
Clearly, this can be the difference between hitting or missing your long-term investment goals.
The tricky part is figuring out exactly what you're paying.
To help out, we’ve listed six of the most common fees you should watch out for.
1. Platform fees
This is simply a charge for getting access to an investment firm’s website, before you’ve even bought a product or service.
It can also be quite chunky, as high as 0.3-0.5% in some instances.
2. Entry/setup charges
On a similar note, some firms will make you pay a percentage of your initial deposit to ‘cover the cost’ of setting you up and giving you access to an investment or fund.
This entry charge is payable up front and can be as high as 2-3% – hardly a friendly new-customer welcome!
3. Trading charges
If you buy and sell the investments yourself you’ll probably have to pay a fee each time.
Look for low one-off trading charges and value bundles where you can get a discounted rate on multiple trades.
As bizarre as it sounds, some firms can also charge you an inactivity fee, so watch you don’t get stung for doing absolutely nothing!
4. Portfolio and fund management
Probably the most important cost you’ll come across and the one most firms use as their main advertised fee rate.
But don’t let that fool you: they might go low here and have high costs everywhere else to make up for it.
5. Rebalancing fees
A charge for realigning your portfolio to your preferred risk level.
Some firms will do this automatically and for free, but others will still charge you.
6. Exit costs
When you want to take your custom elsewhere you get one more nasty charge squeezed out of you at the 11th hour. Ouch.
Other costs to consider
This is your main basket of fees, but there are plenty of others.
There are dividend reinvestment charges, brokering commissions and fees for just receiving paper statements or changing your personal account details.
And remember to check if any of your fees include VAT.
Most fees will be calculated as an annual percentage, but are usually applied to your account on a monthly or quarterly basis.
Note that management fees tend to go down the more you invest, or as the size of your portfolio grows.
For example, the annual fee on a fully-managed portfolio at wealth manager Nutmeg is 0.75% for the first £100,000 and 0.35% beyond that.
As you move from one fee level to another, you may have that new fee applied to all of your account, or just the amount you hold in the new range.
Again, it's important to know which of these routes your investment manager has decided to use.
According to Martin Stead, Nutmeg CEO, it's vital that you look before you leap.
“The devil is in the detail. Some firms have horrendous fees buried in their terms and conditions.
“It can be a real pain to pick them all out and calculate the true total cost of an investment service, especially when we all lead such busy lives, but it really is worth the effort.
“Doing your research now could be a big boost to your wealth in the long run.”
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