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!]