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Where is the best place to buy your ISA?

There are many websites catering for ISA investors. Which are the cheapest?

 

by Gavin Lumsden on Mar 16, 2012 at 18:23

Where is the best place to buy your ISA?

(Update) What's the cheapest place to buy a stocks and shares ISA?

Although you can buy funds for your ISA direct from fund management companies, generally speaking it's cheaper and you get far more choice if you go to one of the many investment 'supermarkets' and discount brokers that have emerged in recent years.

However, comparing the costs of these websites is difficult as they charge a range of upfront, monthly and annual fees with additional one-off administration charges on top.

Fortunately, a new website called Investor Bee has come up with some answers. Drawing on a database of the fund holdings of 1.2 million private investors Investor Bee has devised what it says are objective definitions of risk: high, medium, medium-low etc.

All that is interesting but is the topic for another article. What interests me is the following table, which shows how much of your money would go in charges each year using eight of the biggest fund supermarkets.

The table shows the costs for investors with different risk levels. We've ranked the table on the medium-low risk category as we think that is where most people lie, and it fits in with the five ISAs for novice investors we highlighted last week.

Total annual charges on the main fund supermarkets

Risk level Medium-low Medium Medium-high High
Alliance Trust Savings 1.08% 0.97% 0.90% 0.87%
Selftrade 1.30% 1.09% 0.91% 0.85%
Hargreaves Lansdown 1.32% 1.10% 0.93% 0.86%
TD Direct Investing (formerly TD Waterhouse) 1.32% 1.11% 0.94% 0.88%
Fidelity Fundsnetwork 1.38% 0.95% 0.64% 0.52%
Bestinvest Select 1.78% 1.57% 1.40% 1.34%
The Share Centre 1.86% 1.64% 1.47% 1.41%
Barclays Stockbrokers 2.19% 1.77% 1.48% 1.36%

Source: Investor Bee

Currently, it looks like medium-low risk investors are paying more than high-risk investors, which seems a bit unfair! Investor Bee's analysis assumes that the full £10,680 ISA allowance has been invested. More significantly, it also assumes that investors are choosing lower cost tracker funds rather than more expensive active funds.

This puts Hargreaves Lansdown, the market leader, in a poor light as it recently introduced monthly charges on tracker funds sold on its platform. The analysis also includes any special end-of-tax-year offers.

For another way of looking at this, the Candid Money website has analysed the savings you can get from different websites. Traditionally, discount brokers, as they are also called, made their money from the annual commision they received from fund management groups. As competition has intensified, the discount brokers have started to share some of these rebates with investors. This list includes several websites not covered in the first table. Unlike the Investor Bee analysis, Candid Money has taken eight diverse funds, all but one of which is actively run.

Discount broker savings

£10,860 ISA invested  
  Equivalent annual rebate Saving
Cavendish Online 0.44% £768
Massow's 0.35% £612
Clubfinance 0.33% £573
Alliance Trust Savings 0.26% £447
commfreefunds 0.24% £413
rplan 0.22% £381
commshare 0.22% £381
Bestinvest Select 0.17% £287
Chartwell Direct 0.13% £227
TQ Invest 0% £0
Hargreaves Lansdown -0.05% -£89

Source: Candid Money

As Justin Modray of Candid Money points out, some of the cheapest discount brokers offer a 'no-frills' service without any research tools or help. However, if you know which funds you want, they can provide an efficient and cheap way of investing.

Fund supermarket charges can be confusing. We'll do some more comparisons in future, but for the time being these two tables should point you in the right direction. 

22 comments so far. Why not have your say?

Roger B

Mar 16, 2012 at 16:57

How can HL give negative rebates ? They advertise that they share some of the rebates with the fund holder - which is right ?

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Stuart Thorne

Mar 16, 2012 at 17:14

I think the author needs to check his facts properly and then check his typing ! Should articles like this not be edited and fact checked before publishing?

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TJL

Mar 16, 2012 at 17:57

Shame Sippdeal is not included, I did some checking recently (see Forums) and Sippdeal seemed to be pretty competative.

I was looking at Investment Trusts in particular (but funds as well) and there are several things to consider, dealing and selling charges, administration charges, Isa charges, dividend re-investment charges and regular monthly payment charges.

One thing I think I did prove, is that HL is not the best place to invest in ITs IN AN ISA.

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sgjhaghsdg

Mar 16, 2012 at 18:26

I can't see how the (for example) BestInvest fee is worked out. The don't charge a platform fee for HSBC or Blackrock trackers, and only £60pa for holding Vanguard funds and/or ETFs. Even on just £10680, this is only 0.5% on top of the TER, and you ought to be able to keep TER below 0.4%.

I went to check "Investorbee", but Citywire's link is to "homeimprovement.com" and the only investorbee site I can find looks somewhat "Fischer Price" for an investment web site!

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Franco

Mar 16, 2012 at 20:07

Like all other Citywire "research" articles, this one is half baked and ambiguous too. But it is very good that some one has attempted it at last. If we had to wait for Which, we would probably wait for another 10 years if not 20. They are still testing washing up liquids, you see.

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clarkkent

Mar 16, 2012 at 20:12

If you are over 50, try Saga.

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sgjhaghsdg

Mar 16, 2012 at 20:17

The big problem is which S&S ISA is "best" depends on what you want to hold (OEICs, ITs, trackers, equities, etc.) how large your pot is, how often you want to trade/rebalance, and whether you want to drip-feed money in.

It shouldn't be this hard.

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D G Stonebanks

Mar 17, 2012 at 08:43

Roger B "How can HL give negative rebates ? "

The Citywire note said "More significantly, it also assumes that investors are choosing lower cost tracker funds rather than more expensive active funds.

This puts Hargreaves Lansdown, the market leader, in a poor light as it recently introduced monthly charges on tracker funds sold on its platform."

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Justin Modray

Mar 17, 2012 at 10:14

Hi, just to clarify, the figs I calculated (Candid Money) show the average annual trail commission rebate net of any broker annual charges and dealing fees (over 10 years assuming 7% gross annual growth). E.g. HL charges £24 a year to hold the tracker I used (HSBC FTSE AllShare) in its Vantage supermarket while Alliance Trust charges a £12.50 dealing charge when buying and selling funds. This is why HL trail commission saving is negative in my example, their average annual rebate was just 0.13%, more than outweighed by the £24 annual charge. Of course, in practice you needn't hold a tracker fund, but I think the comparison is more realistic for assuming one is held.

For info, the 8 funds I assumed for the cpomparison (which I think are broadly representative) are: Aberdeen Emerging Markets, HSBC FTSE All Share Tracker, Investec Enhanced Natural Resourecs, Invesco Perpetual High Income, M&G Global Dividend, M&G Optimal Income, Standard Life Global Absolute Return Strategies, SWIP Property.

Hope this clears up any confusion but feel free to post any further questions below.

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Blue

Mar 17, 2012 at 15:42

Has anyone any views on the best place to hold a stocks and shares ISA?

I have comes across these but they look a bit too good to be true...

http://content.jpjshare.com/jpj/new/

Has anyone any experience of using them?

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David West

Mar 17, 2012 at 17:20

If this comparison is just based on tracher funds - although valuable - it does not give the complete picture. I have an ISA with HL in which I hold just funds. I do not hold any investment trusts, individual shares or tracker funds within my ISA.

I therefore do NOT PAY A PENNY to HL. I think it is time to stop bashing HL for introducing a charge for some of the tracker funds they provide on their platform. OK this is not welcome but the bigger picture should be what they do when and if their trail commission is abolished at the end of this year. This, as I understand it has not yet been finalised since consulation with the FSA regarding this is still ongoing. Until this is finalised and HL state what they intend to do regarding any future charges I intend not to invest any new money with them. Having said this you get what you pay for and their service is extremely good. I am waiting to see!

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Anonymous 1 needed this 'off the record'

Mar 18, 2012 at 22:48

I use Killik. They are expensive as hell but the only ones who have a wide range of alternative funds available so over time I believe they're worth it.

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TJL

Mar 19, 2012 at 18:50

Dear David West,

I think you'll find you are paying about 1.5% minus loyalty bonus per annum - i.e. about 1.25%. It is being paid to someone.

Invesment of:-

£1000 = £12.50 per annum.

£10,000 = £125 per annum

£25,000 = £312.50 per annum etc., etc.

Someone with £100,000 invested is paying £1250 per anum.

Please correct me if I'm wrong.

I contend that most people don't have a clue how much in charges they are paying - including me until recently. I think I can save myself about £1000 per year by making some changes.

Regards.

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TJL

Mar 19, 2012 at 19:45

Just to clarify, I think you'll be paying 0.5% to HL and the other 0.75% to the fund manager.

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David West

Mar 20, 2012 at 18:13

Hi TJL

I fail to understand your explanation. Obviously there are management fees deducted directly by the individual fund managers but HL do not deduct anything as far as I can see in my case for running my ISA on their platform. The value of my ISA goes up and down with market movements but definitely does not have any amount deducted from the underlying value by HL. Quite the reverse when the loyalty bonus is taken into account. I would welcome your further comments in case I am missing something.

KInd regards

David

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TJL

Mar 20, 2012 at 18:52

Hello David,

Apologies if it is me that has misunderstood and concerned you unnecessarily.

HL make no charge for providing the Isa wrapper as some platforms do (if that is what we are talking about?), but a typical fund manager charges 1.5% annual management charge, 0.75 of which is typically rebated to the advisor/platform, and in HL's case, approximately 0.25% of which is rebated to the customer as a loyalty bonus, leaving HL with 0.5%.

That is my understanding, but I'm happy to be proved wrong if I’m misleading myself (never mind anyone else).

Regards.

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Justin Modray

Mar 20, 2012 at 19:21

David West, my comparison is based upon money split equally between 8 funds, of which one is a tracker - see my earlier post for list of funds used.

The point of the comparison is to show the net annual rebate (for a typical fund portfolio) of using the various discount brokers that rebate some/all trail commission after any extra cost costs they levy.

Hope this makes sense.

Regards, Justin

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David West

Mar 21, 2012 at 18:24

Hi TJL

Your understand is absolutely right and your not misleading yourself. Thanks for getting back on this.

Hi Justin

Thanks for your clarification.

Regards to you both.

David

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Sophie Coleman

Mar 22, 2012 at 11:07

Hi all.

We update our fee numbers on a regular basis at InvestorBee and would like to share the latest data. Check out our UPDATED choosing a platform page https://www.investorbee.com/investfund.aspx.

Thanks to Bestinvest for pointing out their fees are lower.

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TJL

Mar 22, 2012 at 15:01

I'm struggling to find the article - can you be more specific about where it is ?

(the link doesn't work for me).

Thanks

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Resource17340

Mar 25, 2012 at 21:18

I recommend and have:

SIPP in Sippdeal

ISAs in iDealing

InvestorBee seems to be for naive investors who think you have to invest in funds only. It has a cheery friendly Wonga style interface, with community slightly social networkish features.

Makes me want to run a mile. Wonder if they have the Pimco and Vanguard funds on there....or just preferred partner funds with high costs.

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Sophie Coleman

Apr 02, 2012 at 16:04

@Resource17340: Re, your question about the funds rated on InvestorBee.com: we are independent and have no preferred partner. Our ratings are achieved by risk-grading funds and comparing their net performance against the outcomes of 1m+ real investors to provide an objective perspective.

We take a total portfolio view that includes almost 400 multi-asset funds, as defined by the IMA (rather than looking at individual stocks and shares). We include and rate the TER of all funds listed.

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