Understanding investment fees…. and how to beat them.

Fee stacking?

The really confusing thing about comparing investment platforms and their fees is that not all of them charge all the same fees; some may stack their fees up separately, but others may roll them up into one simple charge.

The point is to be aware of what you can be charged for and use that to compare your options.

Stock market dealing fees

Usually, you’ll pay dealing (or trading) fees when you buy and sell stocks and shares. Yes, you’ll pay twice:

• One fee for buying
• One fee for selling

Stock market trading fees vary, but tend to come in around £10-£12 per trade.

This means that if your purchases and sales are for relatively small amounts, your fees will end up being a substantial cut of your profits!

How to beat trading fees

Freetrade is a new platform that offers zero-fee investing – seriously. It’s just launching now so there’s still a waiting list, but it looks fantastic: what’s not to love about paying no fees?

This means that you don’t have to be minted to profitably trade on the stock market, as you can invest with very small amounts without undercutting the value of your holdings. Get on the list here.

Also, you can look at ways to minimise your trading costs with your existing broker – not trading more than necessary and looking into whether there are sale periods. For example, Halifax Share Dealing has a regular event when you can trade for £3.95.

Headline platform fees

Just to get started, you’ll have to choose an investment platform – basically, a company through which to buy and hold your stocks, shares, bonds and funds.

These companies will charge you either a percentage of your holdings or a flat annual fee. It’s not easy to say what’s the best investment platform for fees as each one’s fee structure might be great for some and not others – for example, affordable up to £10k but not so great from there on, or expensive up to £5k and a great bargain after £50k. Confusing, right?

Moneywise has a comparison table to help you make sense of the different charges based on the size of your portfolio.

Wrapper fees

ISA fees, SIPP fees, GIA fees – each type of product may come with its own charge. They may often be incorporated into an overall headline fee, so just check the fine print.

Fund fees

For index tracker funds holding UK companies as well as global tracker funds, The Motley Fool suggests a total annual charge of 0.25% or less, and adds that many ETFs have Total Expense Ratios of 0.5% per year.

It’s not easy to state what an average fund should cost, but this shows what a fund can cost you, and that it doesn’t have to be sky-high.

Managed funds will of course be pricier.

Performance fees

Extra dosh thrown at the fund manager for hitting benchmarks or outperforming expectations. They’re not very common, but there are a few funds out there that charge them, so now you know.

Stamp duty

Yes, you have to pay stamp duty of 0.5% when you buy UK shares. ETFs are registered outside of the UK and are exempt from stamp duty, as are foreign shares.

Over to you…

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