Questions of Cash: How I got a shock over the fees on my four grandchildren's savings
Friday 19 July 2013
Q. Can you believe that some children's savings accounts take out more in fees than they generate in dividends? I have four investment dealing accounts for my four grandchildren with Alliance Trust Savings, which I have held for several years. The dividends were paid into the account and when there was enough, more shares bought. I had been very happy with the way the value of these accounts was growing, especially when there was a rapid growth in the share price. But now I have had a nasty shock.
Since last August, a £12 fee is charged every time a dividend is paid in. As the largest dividend for the oldest child was £17 and the smallest was just £10 they are actually taking out more than they are paying in for the youngest child. I wrote to complain and was told I had an email last June explaining a new fee structure had been introduced. I must have inadvertently deleted it without reading it. MS, Cirencester.
A. Your situation is not unique and it is increasingly difficult to keep the investment accounts of different children separate without incurring very high fees. Alliance Trust Savings stresses that the deductions are quarterly administration charges, introduced a year ago.
A spokesman says: "We suggested in our letter to [the reader] that, if appropriate, she could consolidate her accounts into one First Steps account to reduce the account administration fees she was paying... We appreciate there may be an important reason why [the reader] has several investment dealing accounts set up, but if it was an option for her to consolidate the four accounts into one, this would mean significantly lower costs with one account administration charge."
Alliance Trust uses a charging model based on flat fees, which it believes is transparent and avoids retaining any fund commission. "We could not continue to absorb a high proportion of administration costs as we have in the past," says its spokesman. He adds that it hopes to reach an acceptable solution with you through continued discussion.
However, you may need to find a different provider, says Danny Cox of advisers Hargreaves Lansdown. "Investment accounts for children are usually kept separate by the investor as this makes them much simpler and more equitable to distribute and manage," he adds. "With one holding, trying to split this fairly as each child reaches age 18 may be difficult to work out. Unfortunately flat fees and dividend reinvestment do not always suit the small investor.
It may also be better to use a provider which charges a percentage rather than a flat fee and use a fund where there is no charge for dividend reinvestment, rather than an investment trust. There are a few who offer this. However, the platform market is going through some change at the moment and not all platforms are in a position to offer commission-free share classes at the moment. HL is in the process of negotiating lower cost commission-free funds and expects to launch these probably in January next year. Others, including Bestinvest, have also yet to announce or launch theirs. One option would be to wait until all the platforms have launched their pricing before deciding whether to switch and to whom."
Q. In September 2008, on the advice of an IFA, I invested £10,000 in the JPM Cautious Total Return Fund. The fund stated it was "designed to deliver positive returns - aims to beat the return on cash – one month LIBOR - by an average of 3 per cent per annum over the medium term, for example three years". I thought that being linked to LIBOR was a stable benchmark. Given banks' manipulation of LIBOR, does this make the fund not fit for purpose? The finance industry seems to have been aware of the problems with LIBOR at the time the investment was sold - so was it mis-sold? On the latest valuation, the investment was worth less than the sum invested. PS, Keighley.
A. You were advised by Paramount Group, which is now part of Towergate Financial. It has investigated and says the fund was not linked to LIBOR: it was merely felt this was a reasonable investment benchmark. It also says the risk profile of the fund is lower than your assessed attitude to risk, so Towergate does not believe it was mis-sold. You have now sold for a small profit.
Q. My wife and I had a road accident. We had just left the M4 and were heading towards Chippenham, and were being followed quite closely by a van with the Norland [Managed Services] logo. We stopped at the first roundabout after the motorway and waited for traffic to clear from the right. As we were about to move off the van hit us with some force from the rear. The driver of the van gave me details of the ownership of the van, but declined to give his address. My insurer, LV, has put in place arrangements for repair, but I am liable for the first £100 of the cost unless Norland accepts responsibility. DK, by email.
A. This is now resolved to your satisfaction. Tommy Meikle, managing director of the UK Services Division at Norland, says: "Our driver did fail to provide his address, which he is required to do under the Road Traffic Act. As this was a company van, he gave the company address not realising he had to give his own as well. He has been advised of his error. In the event that the insurance company finds Norland's driver to be at fault, as a gesture of goodwill Norland will pay the £100 excess."
Questions of Cash cannot give individual advice. But if you have a financial dilemma, we'll do our best to help. Please email us at: email@example.com
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