Fees

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I read recently that some poor bloke’s pension fund hadn’t grown in 11 years due to the extortionate fees charged by his provider and thought I’d mention something closer to home.

My sister has been over for a visit these past couple of weeks.  Over the course of catching up, conversation turned to pensions and she mentioned that a pension plan which she was saving into on a monthly basis in Hong Kong wasn’t ‘doing anything’.

In fact, not only was it not ‘doing anything’, it was actually worth less than the capital she had put in over the last 6 or so years! I asked her how this was so, as we were in a run of bull markets and suggested that she checked the fees she was being charged. She said she didn’t have time to look at such things so I said I’d look for her, if she provided me with her latest statement.

It turns out that she is investing in various funds (I didn’t make note of the exact fund names and no longer have her statement to hand) which have an initial charge of 5%, plus ongoing fees of average 1.7%. On top of that, her ‘financial advisor’ charged her an admin fee of 2%. Ouch!  All those fees were just gobbling up any profits the funds were making!

When I told her, she was really annoyed, both at herself (for not making the time to check the fees) and at her financial advisor. To add insult to injury, upon investigation, she found that there was a big exit fee if she were to transfer this pension to another provider. Double ouch!

It looks like the only thing she can do is to switch the expensive funds into cheaper trackers/ETFs (if she is able to do so), so that’s going to be one of her first tasks when she gets back home after her holiday.

Now that she is conscious of how devastating high fees can be to investments, she will also be considering other pension providers and if she can find a cheaper one, will stop contributing to the current one and set up a new account.

My family have been investing a lot longer than I have but it looks there’s still stuff I can bring to their attention! Perhaps I’ll speak to other members of my family to make sure they too are not paying too much fees-wise.

Me and my Funds

When I first started investing, my investments were all in funds. I then switched to cheaper tracker funds. However, just over a year ago, I switched nearly all the remaining tracker funds into ETFs to reduce fees further.

The biggest fund I own now is my Vanguard Life Strategy 80% but I’ve worked out that if I switch this one into an ETF, I’m not really saving anything so I’m going to leave it as is for now.

The two providers I use for my investments (SIPP and ISA) are Hargreaves Lansdown (HL)* and AJ Bell Youinvest (AJ)*. The latter is cheaper but service and website-wise, I have to say that it’s quite a bit behind HL.  AJ has FAR more downtime for its website at weekends (how annoying when the weekend is when I have more time to check my account!) compared to HL and ‘regular investments’ don’t always happen on the day they’re supposed to happen!

On the other hand, even if occasionally late, I prefer how regular investments are made with AJ than with HL (investments are made from monies within the account, rather than direct from your bank account) so there’re pros and cons to both, which I can live with.

Anyone else changed their investments or switched providers when they found out they were being ripped off?

[*note this is not a recommendation to use these providers, I’m just saying these are the ones I’m using – as always, please do your own research or better yet, check out Monevator’s broker comparison!]

23 thoughts on “Fees”

  1. Hi Weenie,

    Thank goodness you stepped in and helped your sister with her pension…it’s shocking to think how much greedy financial advisors can skim off people’s savings.
    I hope she is able to switch to some lower fee trackers, and stops paying into that provider with high exit fees.

    I have my pension invested through a financial advisor (St James Place), who do have higher fees than self investing, but so far I’m pleased with the rate of return they’re achieving. I invest my ISAs myself now though, which means I keep fees low for those. I use Lloyds investment and mostly put my money into Vanguard life strategy funds.

    OR

    • Hi OR

      You’re at least aware of SJP’s fees but also happy with what they are doing for you. My sis was unaware and also unhappy with her financial advisor’s performance!

      Mixing and matching I think is the way to go (and not have all investments with one provider) so if one is more expensive and the other cheaper, then the fees are balanced out.

  2. The classic story/book on this on financial services serving themselves exorbital fees is the book: Where are the Customer’s Yacht. As can be inferred from the title of the book, as one walks along the pier noting all the bankers and brokers yacht, you can’t but wondering ‘Where are the customer’s yacht?’ If what they doing is performing so well??

    One of the major lessons in investing indeed.

    https://www.fool.com/investing/general/2014/02/21/where-are-the-customers-yachts.aspx

    https://www.amazon.co.uk/d/Books/Where-Are-Customers-Yachts-Investment/0471770892

    • Hi FP

      I actually quoted this book title to my sister, who looked at me blankly at first and when realisation kicked in, she got even more annoyed at her financial advisor!

  3. The problem is the way our brains are wired. People see a 2% advisor fee and think “okay, it’s only 2%”.

    Of course if your rate of return is 5% after inflation then then those two percentage points are actually 40% of your annual real returns! But most people’s brains are wired to just see the 2% and think it’s a tiny fee when it’s anything but.

    • I’m sure there are many more people in for a shock as most don’t bother checking their pension statements, until it’s all too late.

  5. hi Weenie,
    why not transfer your lifestrat 80% to Vanguard’s platform direct? they only charge 0.15% platform fee, which is lower than HL and AJ.
    I am with HL at moment for my ISA and SIPP, but I am going to transfer my lifestrat holding to Vanguard once new tax year starts in 2018, mainly for lower charges. It was a shame that they did not launch their new website until May 2017 and will not launch their SIPP until end of 2018.

    JC

    • Hi JC

      Thanks for the suggestion. As my VLS80% is in my SIPP, I shall consider my options at the end of 2018. I’ll need to view things long term as I already have SIPPs with two providers and not sure I want to add a third, or transfer one to Vanguard .

  6. Hi Weenie,

    Good on you for stepping in and taking the time to help your sis! I still find it amazing that people dont take time to look and monitor their funds and savings performance. I measure my IFAs performance against the various benchmarks (FTSE-100, trackers etc.) after fees so I know exactly what I am paying for and what that is doing to the performance. So far I am clearly very lucky that I have a good IFA!

    Cheers,
    FiL

    • Hi FiL
      Sadly, although they should be, many people are just not interested in personal finance, much less investments and even less so with pensions! I was surprised though with my sis, I thought she’d be a bit more savvy. Yeah, sounds like you’ve done well with you IFA! 🙂

  7. Hi Weenie,

    I also saw the same story and was shocked at how little his pension was now worth. Unfortunately it comes down to the lack of financial literacy in the developed world. There was an interesting article on Monevator about this recently.

    Luckily I’ve been careful from the off when investing (around 4 years now) but I’m half tempted to talk to family members about their pensions but I really don’t want to come across as noisy.

    • Hi HTSC

      Agree, it’s down to lack of financial literacy but also because for some reason, most people just aren’t interested. I just don’t think they realise the importance of being on top of their pensions and checking their statements.

      I’m actually hoping that my sis will mention the fees thing to other members of the family so I don’t need to, haha! She can definitely say she is speaking from experience of high fees!

  8. Hi,
    On platforms I have experience of Charles Stanley Direct and Interactive Investor. The latter is good for portfolios over £50K as costs are fixed, and if you have a SIPP with them then cost is capped. CSD is a more user friendly website but not by much over II. Monevator’s chart of all the platforms is instructive…

    • Hi Bellabeck
      Yes, I shall be consulting Monevator’s chart again once I start looking for another provider. Thanks for sharing your experience with CSD and II.

    • Cheers Steelkitten – it’s like once you’re aware of the fees, they’re the first things you look at. I’m sure my sis won’t be making the same mistake twice!

  10. I wouldn’t be surprised if this “pension” plan is simply just a life insurance wrapped investment product.

    Like your sister, I’ve been duped into such a plan around 9 years ago as well. I am in the process of unwinding these expensive “investments” which have not netted me anything in 9 years, while the insurance company and investment adviser has done well out of commissions and fees.

    To add my so called adviser is now under SJP.

    • Hi Bob
      Sorry to hear that you were duped into an expensive plan but at least you discovered it and are in the position to be able to get rid of them. I think my sister’s plan is just a pension plan but I will mention to her to check the paperwork – thanks!

  11. The fund managers fees of nearly 7% and the 2% to the idiot adviser are shocking enough. But my attention was caught by the poor performance of the investment itself.

    Buffet tells us that most fund manager under-perform the.S and P (so I guess in our case the FTSE) so a low cost tracker is a better instrument.

    There is a tool for comparing the performance of funds and bonds funds somewhere, but I have forgotten where I saw this, can anyone advise me?

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