Value For Money – Your Guide to Fees & Charges

Fees in the financial services industry are too often opaque. The fees of most providers are a percentage of your investment with additional fees for platforms and trading on top. So it can be difficult to get a clear picture of what you’re actually paying for financial advice and support, and even harder to judge value for money.

At Xentum, we take a different approach with a clear commitment to transparency with our fees. We believe a flat fee approach based on the complexity of your needs rather than the size of your wealth is the fairest approach. High wealth doesn’t necessarily mean complexity. A lower level of wealth doesn’t necessarily mean your affairs are easier to manage. It all depends on your unique circumstances.

We’ve produced a helpful guide to explain fees and how they work. In a nutshell, there are three main categories of fees:

• Charges relating to financial planning
• Charges relating to investment strategy
• Charges relating to your adviser fees

Planning charges

Platform/provider charge

You will pay a fee for using an investment platform. The investment platform is an online location where you can buy and sell shares and fund, review and manage your investments. The platform will also provide access to a range of research tools. Typically, platforms charge a percentage annual fee, but some may levy a fixed amount each year. The difference in fees between the cheapest and most expensive platforms can add up to thousands of pounds for a large portfolio. Some platforms also charge a few pounds when you buy or sell an investment and some charge ‘exit fees’, although these are increasingly rare.

Dealing charges

In addition to the platform charge, you may also pay dealing charges – when you buy or sell funds. Most platforms don’t charge anything for trading investment funds, but some do – so you need to watch out for that. All platforms charge for share trades, with the price range varying widely – but in most cases, the more trades you do, the cheaper it gets.

Wrapper charge

Depending on the types of plans you hold on the platform there can be an additional charge called a wrapper charge. This will vary depending on the type of plan it is applied to.

Charges relating to investment strategy

Investment charges

If you’re investing in funds, there are various charges associated with the underlying funds which are represented as Ongoing Charges Figure (OCF). This covers all ongoing costs involved in running an investment fund. It includes charges such as the Annual Management Charge (AMC), administration fees, transaction fees, regulatory fees and other expenses.

The OCF is always quoted as a single percentage figure. For example, if a fund has an OCF of 0.50%, then for every £1,000.00 you invest, £50.00 goes towards the costs of running the fund. Typically, this might be around 0.10%-0.30% for a tracker fund, but as much as 0.80% or more for actively managed funds. Different platforms are able to negotiate different deals, so you may find that one investment has a higher platform charge but a lower charge for the fund you want to invest in. Also, not all investment strategies are available on all platforms.

Additional investment charges

There can also be some additional costs not covered by the Ongoing Charges Figure such as transaction costs relating to buying and selling the fund’s investments, commission paid to stockbrokers for trading and Stamp Duty Reserve Tax. This can vary widely depending on the types of investments/portfolios you invest in. Some funds also include exit fees if you were to disinvest or transfer away.

Discretionary fund management charge

If you chose to utilise the expertise of a discretionary investment manager (DFM) for your investment strategy this can add an additional charge. A DFM can buy and sell funds within your plan without direct permission from you. The charge covers the expertise and research the DFM carries out to pick and choose the most suitable funds for you.

Charges relating to adviser fees

Adviser charges

Many advisory firms will charge you a percentage fee for managing your investments these can vary widely from 0.50% all the way up to 4%. This would mean if your investment was £500,000 at 0.50% you would pay your adviser £2,500 a year. Alternatively, if your investment is charged at 4% you would pay your adviser £20,000 a year. These figures are to demonstrate the cost of having a financial adviser and it’s important to make sure you understand cost and service levels before making any choices. The reason we do not operate on a percentage basis is because we don’t think it’s fair.

The support you receive should have little correlation to the level of your wealth. It should, rather, reflect the complexity of your financial arrangements and the amount of time and expertise required to help you.
Just because you’re wealthy doesn’t mean you necessarily need more time of your financial advisor each year – you may have relatively simple wants and needs that can be serviced in a few hours every month.

Summary

The key is not to avoid charges where the services are helpful, but to be aware of them so that if they do not add value to your financial support, they can be excluded. All too often you simply don’t know what you’re being charged for and why.

When you work with us, you can be sure that you know exactly what your financial support is costing you. To find out more, book an exploratory call with a member of our financial planning team.

Download our fees guide here or visit our fees page for more information.