A SUNDAY TIMES reader has saved more than £2,000 a year by switching his investment adviser.
Charles Land-Reeves, 81, from Worthing, West Sussex, had invested with the broker Bestinvest, now known as Tilney Bestinvest, for more than two decades, but he thought his service had deteriorated and he could cut costs by switching.
“The service became less personal as the company grew,” he said. “The adviser I was dealing with had moved on, so I was being passed on to a different person each time I got in touch. I was also horrified to learn of the charges I was paying.”
His frustration prompted him to search for a smaller alternative provider, eventually deciding on Candid Financial Advice, which started offering investment services last year. The move has saved him £2,400 a year in charges for his and his wife Christine’s two six-figure Isa portfolios.
It is an example of how investors are voting with their feet to avoid high fees, which were exposed following regulatory changes in 2013, that require advisers to declare their costs upfront rather than receive commissions from fund providers.
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Last week Hargreaves Lansdown, the biggest investment platform, announced it was launching a lower-cost “discretionary” service for clients with small portfolios in the first half of 2015, as it had identified a gap in the market from investors wanting more expert help. This is where the adviser can make portfolio adjustments without seeking permission. It will charge an annual fee of less than 2%, including all fund charges, for portfolios under £10,000.
Land-Reeves, an author who wrote about his experience as a wartime prisoner of the Japanese in the book ...Boy! A Passage to Manhood, was paying 1.5% a year for a discretionary service with Bestinvest. The total cost was £4,050 a year, excluding all fund charges.
Candid charges the couple 0.5% for a full planning and investment “advisory” service. The latter is where the adviser recommends changes to a portfolio, but seeks permission to make the changes.
There is also a platform fee on top to make the investments with Candid. It uses the Alliance Trust Savings (ATS) platform for the couple’s investments, which costs £150 a year for each Isa portfolio, so a total of £300. The total annual fee for the couple after the switch was £1,650.
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Land-Reeves said: “I much prefer getting a call from Candid telling me about an opportunity and why I should invest. With Bestinvest, I never knew where my money was going until I received a statement.”
Bestinvest, founded in 1986, was acquired by the private equity group Permira last March. It was merged with the wealth management arm of Deutsche Bank, called Tilney, last month. The new group manages assets of about £9bn.
Bestinvest said: “It appears the client has moved to a non-managed advisory service where they receive recommendations, but it is down to the client to follow and execute . . . that may well suit this investor, but it is a different service and it will command a different level of fee.”
Gina Miller at the adviser SCM Private, who has been campaigning for greater transparency on charges, said: “The difference between discretionary and advisory asset management services is the degree of investor involvement in the day-to-day management of the portfolio.
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“The question is how much you are willing to pay for extra handholding when the information available via the internet has significantly increased investors’ knowledge and access to information.”
Discretionary advice
This is where the adviser does all the work. Your portfolio will be adjusted regularly depending on your investment goals and risk profile. You are usually sent a statement every six months or so outlining changes.
The costs can vary depending on how many times your portfolio is adjusted and its size . The cost of the underlying funds can also vary as providers have negotiated different rates for their clients.
Brewin Dolphin has an annual charge of 0.75% plus VAT, so a total cost of 0.9%. But there is also a dealing fee of 1.25% on the first £15,000 invested but no additional platform fee. The charge tapers the more you invest.
Tilney Bestinvest charges 1.25% plus VAT, so a total cost of 1.5% a year. All platform and dealing fees are included in this charge.
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On a £250,000 Isa portfolio with six trades of £20,000 a year, but not including underlying fund charges, analysis by Candid for The Sunday Times shows an investor would pay a total annual fee of £3,795 with Brewin Dolphin and £3,750 with Tilney Bestinvest. Out of five discretionary managers analysed, Tilney Bestinvest came out cheapest on the example portfolio.
Hargreaves Lansdown charges 0.438% a year for its discretionary service, and there is a separate platform fee of up to 0.45%. You also pay an additional 0.9% a year discretionary fee if invested in third-party funds, but the vasts majority of Hargreaves’ discretionary customers are invested in the provider’s in-house multi-manager funds, which charges an extra 0.75% annual fee instead. This means the total costs are 0.75% on top of the discretionary service and platform fees, taking the total cost to 1.638%.
Its annual cost on the £250,000 example portfolio would be £4,095, according to the analysis by Candid.
About 14,860 of the 652,000 Hargreaves Lansdown clients use a discretionary service.
Underlying fund costs and administration charges are on top for all discretionary services.
Advisory service
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This is where you receive recommendations from your adviser whenever you meet them, or as and when they see fit to recommend a change.
Those who prefer to stick with the same investments and have a large portfolio may find it cheapest to go with the stockbroker Killik and Co. The annual fee is a flat £300 on a portfolio of more than £50,000. However, you also pay up to 1.65% and a £10 compliance charge for each deal, which could add £2,100 a year assuming six £20,000 deals.
Candid is cheap if you make many trades each year and have a small portfolio of, say, £50,000 or less. As well as the relatively low fee, the use of low-cost platforms such as ATS allows clients to make 25 trades a year for the £150 annual charge for each Isa portfolio.
The Candid service also includes financial planning services, which you usually have to pay for separately with other providers.
Taking the cheaper DIY route
If you are happy to forgo advice and make your own investment decisions, you can choose services that apply only a platform charge on top of the underlying fund fees.
The cheapest provider overall is iWeb, part of Halifax. It is an online-only service with no ongoing annual charge, though there is a flat £25 fee to open an Isa and £5 fee for each deal.
Some providers, such as Fidelity, are effectively an execution-only service, though customers are encouraged to research model portfolios on its website. Like Hargreaves Lansdown, Fidelity has a list of top funds known as its select list. Fidelity charges a flat 0.35% a year for investments up to £250,000, plus fees to deal.
A lower-cost provider in terms of the annual charge is Charles Stanley Direct with a 0.25% fee for execution-only services, plus dealing fees on top.