Monday, 28 April 2014

Buying Clean (Part 2)

There has been a lot of discussion about "buying clean" in the investing world recently, and it's not been about solar power and wind farms.

If I understand it correctly the whole charging system has been given an overhaul in order to ensure that customers can be totally clear about what they are paying, and what for. Previously fund managers, brokers and fund supermarkets were allowed to "bundle" charges which meant the various components of the fee could not be pulled apart and seen individually (better explanation here). 

In practice this has meant that, during the transition phase, many funds now have more than one "class", one clean and one. The dirty ones are gradually being phased out. 

In practice this has only affected me in a minor way as iii will deal with transferring over my funds into the clean class for me where necessary (thank goodness) but it has meant that I have had to delete two of my regular investments (Fundsmith Equity and BlackRock CIF Emerging Markets tracker) and add them in again as the "clean" version.

The process may only have caused a minor headache as far as managing my investments goes, but it has made me realise that although I do take notice of charges (I chose my trackers partly they are very low cost and I know that this is why passive funds often end up beating actively managed funds in the long term), I have never actually documented the charges I pay. 

So, this seems a good place (and time) to do so:

Baille Gifford Shin Nippon - Investment Trust, Dealing Charges Only
iShares S&P Global Clean Energy - Exchange Traded Fund, Dealing Charges Only
Herald Investment - Investment Trust, Dealing Charges Only
BlackRock CIF Emerging Markets Tracker (D) - 0.20%
FundSmith Equity - 0.9% (0.15% rebate) - 0.75%
HSBC European Index - 0.25% (0.10% rebate) - 0.15%
HSBC FTSE 250 Tracker - 0.25% (0.10% rebate) - 0.15%

Charges Before the Transfer
The charges we have been paying on our CIS Funds (paid directly to the fund manager) are:

CIS Sustainable Diversified 1.55%
CIS UK Growth 1.50%
CIS UK Income with Growth 1.54%
CIS US Growth 1.56%

(I don't even want to think about the 5% initial charges we paid on all these )

Once they are transferred to ii they will be discounted to:

CIS Sustainable Diversified 0.70%
CIS UK Growth 0.70%
CIS UK Income with Growth 0.70%
CIS US Growth 0.70%

This amounts to a saving of around 0.85% on the CIS funds.

In addition ii charges £20 per quarter platform fee, which includes 2 free trades per quarter. As part of my transfer offer (which hasn't completed yet) I will also get £20 cash and £120 dealing credit. Transferring my husbands ISA over into ii as well means that the two accounts can be linked and we only pay one set of fees. All-in-all a very good deal. £80 a year for two ISAs. As we have £54,000 between us this amounts to somewhere around 0.15% to add into the charges above. Which means that overall, when all charges are taken into account, we will be saving 0.70% by moving to iii.

At our current level of investment this comes to around £380 pa. 
(even without taking the transfer offer into account)

Having just sat down and worked this all out properly for the first time I'm pretty amazed at how much difference the combination of being careful to pick low cost funds and finding the right platform can make.
Being aware of charges and making positive steps to reduce them is key. Clean charging plays an important part in helping us do just that.

1 comment:

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