Simon Read: A cut in investment charges can make a huge difference
The People’s Champion
Investment charges are in the spotlight this year as fund platforms are being forced to come clean about their prices. From April, those who use the platforms must not be charged commission – only an agreed fee.
The move is important as it should lead to more clarity about charges when the so-called “clean” funds are widely available, as well as cheaper services.
The charges effect can be crucial. To show how, I asked Rebecca O’Keeffe of Interactive Investor to crunch some numbers.
She looked at the example of someone ten years ago who might have put their full ISA allowance – £7,000 back then – into the popular Fidelity Special Situations fund.
Anyone who did so would have tripled their money, seeing their savings grow to almost £21,000.
That’s a pleasing return but is based on the prevailing annual management charge of 1.5 per cent. If clean funds had been available then, with an annual charge of just 0.75 per cent, then the investment would be worth almost 7 per cent more – or an additional £1,400-plus.
“The compound effect of paying 0.75 per cent a year rather than 1.5 per cent can make an enormous difference to your long-term investment return and will make a large difference to the value of your investment – particularly for those who have sizeable fund holdings,” Ms O’Keeffe pointed out.
“The industry is polarising between fixed- fee providers and those who continue to charge percentage fees, and investors need to factor this into their decision-making process to make sure they really are maximising their investment.”
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