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What common investment charges should I be looking out for?

In our latest market matters article, where we aim to answer common investment questions, portfolio manager Holly Warburton breaks down some of the most common fees and charges associated with investing.

Understanding the various fees and charges associated with your investments is crucial. While it may seem like investing can often be filled with confusing jargon, it is important to understand what you are being charged (and why) so that you can make informed decisions when it comes to investing your money. 

There are two overarching types of charges when it comes to investment fees: those that are one-off and those that are ongoing.

Ongoing charges

Ongoing charges are those that are typically associated with the management of your investments. This could be on a discretionary basis, whereby the investment decisions are made by a professional manager, or on an advisory basis, which involves the two-way relationship between client and advisor. The fees for this ongoing service, including recommendations, management or advice, are referred to as an annual management charge or AMC. 

The fees are typically assessed in arrears and expressed as a percentage per annum, calculated on the portfolio's value. For example, 1% p.a. on a £100,000 portfolio would equate to charges of £1,000 taken at regular intervals during the year, be it quarterly, or annually.

Although labelled as a ‘management fee’, these charges may encompass any discussions surrounding your investment, periodic meetings, newsletters, updates and so on. 

Whilst generally considered good practice, it is actually a regulatory requirement for an estimated pounds and pence example of this fee to be provided to clients based on their investment amount for a one-year investment. 

Another ongoing charge that may be applicable depending on how your money is invested is the underlying investment costs. If funds managed by third-party managers are invested into, those managers also have their own management fees. At a portfolio level, these third-party management costs are typically between 0.60-1% per annum, depending on what you invest in. 

Although these come at an additional cost, they are often chosen to gain specialist exposure to sectors or themes, such as emerging markets or technology. When chosen carefully, third-party funds have demonstrated a track record of enhancing the performance of a portfolio beyond the associated fees.

However, if your portfolio invests directly into company shares (stocks), say for example you own Unilever or Microsoft in your portfolio, there should be no underlying investment costs.

One-off charges

One-off charges are those that typically occur due to transactions, such as buying or selling shares or making a payment. 

Trading commissions are the most common one-off charge and are based on the value, or consideration, of your trade, whether it involves purchasing or selling shares, funds, precious metals or foreign exchange. These charges are typically linked to execution-only or stockbroking services, where no advice is offered. Instead, your trade instructions are promptly and efficiently executed to secure the best market price at the given time, given the order size.

Other charges to look out for are performance fees, which some managers may take on top of their management fee if they perform well, upfront/initial fees which may be charged for initial advice or to set up a portfolio, and other one-off charges relating to management and administration of your portfolio, for example, to make a same-day payment. 

It is recommended that you review any fees prior to investing your money. If you’re unsure of anything, make sure to ask your investment manager. There are different investment options and service levels catering to all types of investors so it’s important that you find an accessible and cost-effective solution that suits your needs.

If you’d like to find out more about investing with Ravenscroft, or if you have any questions you’d like us to answer, please contact us.