Informed Choice chartered financial planner Martin Bamford was quoted in the FT this weekend, in an article looking at charging transparency on investment platforms.
We like transparency and prefer an ‘unbundled’ approach to charging when recommending an investment or wrap platform to our clients.
In the FT, Martin said that the FSA should require all platforms to disclose the constituent parts of their charges.
There are three parts to the charges an investor typically pays when investing their money – the fund manager, the investment platform and the adviser.
From a total 1.5% annual management charge paid by an investor on a fund supermarket platform with bundled charges, the fund manager might retain 0.5-0.75%, the platform might receive rebates of 0.25-0.45% and the IFA receives commission of 0.5%.
Our preferred approach is to use a wrap platform with unbundled charges.
In this scenario, the 1.5% annual management charge is transparently allocated 0.75% to the fund manager, 0.25% to the investment platform and 0.5% to the IFA.
However, the fund manager cost is typically lower than this 0.75%, with charges as low as 0.15% for Exchange Traded Funds.
This results in a much lower total weighted annual management charge.
Transparency is important. Every investor deserves to understand where their money, in the form of charges, is going.
Photo credit: Flickr/I Woke Up Today
