Find trail commission levels?

Question
I have acted on your helpful information on receing trail commission on ISAs a, Units and OEICs investments. There is one problem you haven't yet dealt with: how to find out, before purchase, what, if any, the trail commission is! Neither Hargreaves Lansdown or Commshare - excellent as their websites are - offer this facility [although you can phone and ask - with all the attendant inconveniences and hazards].

Cavendish does offer [with a warning to check] a link http://www.cavendishonline.co.uk/investments/fund-discounts/ but it is grossly inaccurate. It quotes trail commission values, for example for trackers [e.g.HSBC American Index] that are actually zero.

Can you think of a way to find the values, if any, of trial commissions before purchase without phoning, waiting, once connected waiting some more, while the 'advisor' finds the value, if any?Answer
Trail commission is largely standardised across the industry at 0.5% a year on funds which levy a 1.5% or higher annual management charge. Funds with lower annual charges tend to pay 0.2% - 0.5% except for trackers, which typically pay no commission (not really viable when the total annual charge is usually 0.5% or lower).

While commission rates can vary from these norms and it's not unheard of for providers to increase commissions for favoured distributors (e.g. very large IFAs or discount brokers), in practice such variances are quite rare these days. What's more common is for distributors with their own platforms (e.g. Hargreaves Lansdown, Bestinvest) to negotiate additional fees from fund groups via their platform, which currently do not have be disclosed to investors - so impossible to know exactly how much they're making.

If you want to gauge how much trail commission specific funds generally pay I'd take a look at the Alliance Trust Savings fund list - the annual rebate column shows the full trail commission rebate. It looks like some groups pay extra platform fees too, which ATS also rebates, hence inflating the figure for some funds.

I've taken a look at the Cavendish Online fund list and a quick check of 10 funds (including trackers) showed accurate trail commission rebate figures. That's not to say there are no mistakes in their fund database, but I think you can be confident their figures are largely accurate - I certainly wouldn't call them grossly inaccurate.

All this should (in theory) get a whole lot simpler over the next year or two.

The FSA's Retail Distribution Review (RDR) will ban commissions from January 2012 on new sales via financial advisers. It will remain for execution only sales (e.g. Cavendish, HL) for the time being, but it's expected they'll fall under the same regime within a year.

This means that funds should be offered without adviser commissions and platform fees built into their charges - which is effectively the same as the 'institutional' unit classes already offered by many funds.

The net result is that a fund currently charging 1.5% a year will likely charge 0.75% instead. Investors will then have to pay explicit discount broker and platform fees directly. This is pretty much how Interactive Investor and Alliance Trust Savings are already operating, but it could prove quite a shock to customers of companies like Bestinvest and Hargreaves Lansdown where the pricing is more opaque thanks to the companies receiving undisclosed fees from the fund groups on their platforms. Customers who thought they were getting the platform service for 'free' will likely have to start paying for it directly rather than via fund charges.

Read this Q and A at http://www.candidmoney.com/questions/question697.aspx

Third way pensions a good idea?

Question
I've been seeing articles about so called Third Way pensions. On the face of it they sound as if they may be a better option at the moment than drawdown or annuities. Do you please have any information or links to information which I can use to research the topic?Answer
I'm in two minds about 'third way' pensions - which basically offer some form of protection to growth and/or income while your pension fund remains invested.

My cynical view is that they're just a money-spinner for insurers and financial advisers, with most customers unlikely to end up better off versus a decent conventional pension or annuity.

Being more generous, they might give some customers peace of mind and protect against a crash in markets and/or annuity rates.

For a fuller description of how they work along with pros and cons take a look at my answer to this earlier question, but a brief overview below.

If you've yet to reach retirement age then 'third way' pensions allow you to invest in protected investment funds. So you potentially benefit from upside (often with a cap) while avoiding the worst of market falls.

When you reach retirement age third way pensions can allow you to defer buying an annuity and/or draw an income while your pension fund remains invested, again with some protection. The income rates tend to be lower than conventional annuities at the outset (with a minimum amount guaranteed for life) but could rise if strong fund performance generates growth after income withdrawals.

Both scenarios sound great in theory. But the (potentially big) downside is that protection costs, so you'll normally incur additional annual charges and end up with a rather expensive pension fund. While short term protection can be valuable (albeit expensive), I'm less convinced for the need longer term if you have a sensibly diversified or cautious portfolio.

So, yes, depending on market conditions some customers could benefit from this type of pension or at least sleep peacefully if nothing else (not to be undervalued). But I think the majority would be better served by a sensibly invested conventional pension until retirement age followed by an annuity or income drawdown to provide retirement income.

It's not out of the question that third way pension annual charges could top 3%, which is way too high and rather negates the potential benefits.

I don't expect everyone to agree with my view, but unless charges fall (unlikely, as protection isn't cheap) I can't see myself using one.

Read this Q and A at http://www.candidmoney.com/questions/question709.aspx

What happens to Barclays 6% Pref Shares in 2017?

Question
I have a Barclays 6.0 per cent non-cumulative callable preference share, tt was recommended by a financial adviser some time ago.

I believe it matures in 2017. I am happy to keep the shares til maturity provided the payments are made each year which has been happening even through the worst period when Lloyds etc had to stop paying coupons.

The value of the shares has been and is very low, but I ws wondering if you have any advice and I am not sure what exactly does happen in 2017?

ThanksAnswer
Let's start with a quick recap. Preference shares are a cross between shares and corporate bonds. Unlike ordinary shares they pay a fixed dividend (much like a bond) rather than participate in a company's profitability. Plus preference shareholders must receive dividends before they're paid to ordinary shareholders and they also rank higher in the event the company goes bankrupt (but not as high as debt, e.g. corporate bonds).

However, preference shares don't usually carry voting rights and if the company is successful returns over time are likely to be lower than ordinary shares, although probably higher than corporate bonds.

The Barclays 6% preference shares you hold unsurprisingly pay a 6% annual income on 15 December each year (the 6% is based on the £10,000 issue price, so £600 annual dividend per share held). The non-cumulative part means that if Barclays doesn't pay the annual dividend it doesn't have to make good the missed dividends if/when payments are eventually resumed - so tough luck investors.

Barclays has the option to 'call' the preference shares on 15 December 2017 (i.e. buy them back from you at £10,000 per share) and on each anniversary thereafter. The income level will also change from 15 December 2017 (assuming Barclays doesn't redeem the shares). The new rate will be 3 month LIBOR plus 1.42% - potentially a much lower income if interest rates remain at current levels (at the time of writing LIBOR is 0.8%) and income will be paid quarterly.

At the time of writing the share price is around 62.8 (based on a notional 100 issue price - it keeps the maths simpler than a listing based on £10,000), so new investors are getting a flat yield of just over 10%, plus there's scope for gains if the shares are eventually redeemed at £10,000.

The main risks are Barclays not being in a position to pay the 6% dividend, deciding not to redeem (bad news if the share price remains below redemption price as less scope to recover losses), a lower income from December 2017 if interest rates remain low and, of course, Barclays going bust. The latter is fairly unlikely, but there's a fair chance Barclays will decide not to redeem in 2017.

Assuming you bought at issue then you're currently sitting on a loss and your best bet of clawing back some of the loss is for the Barclays ordinary share price to improve, as this should pull up the price of preference shares. Meanwhile, the dividends are decent so things could be worse. If you bought after issue you may be sat on a loss or profit. If a profit then getting out will reduce risk - the financial sector remains volatile - although the fixed income remains appealing if you can tolerate the potential share price volatility.

You can view more details about your preference shares in the Barclays prospectus here.

Read this Q and A at http://www.candidmoney.com/questions/question710.aspx

Question
Our daughter is three and a half years of age, born in January 2008. We have always contributed the full amount annually into her CTF via a savings account. However we now wish to switch this to an investment plan, probably equity based rather than stakeholder for better potential profits and this is where we need more help. We do not envisage the requirement to access funds until she is at least university age, if she should prefer that route. Considerations for the funds may be: university education and associated costs (we hope we would be able to fund part of this), a deposit for a house, a nest egg for starting a pension scheme.

We intend to always contribute the maximum allowance into the CTF and also wish to start a monthly contribution of say initially £50 to £75 into another vehicle and wonder whether this is best done via a Children’s Investment Plan or even to start a pension scheme for her, or split the contribution between the two.

We are basic rate tax payers. We would recommend your suggestions ref the best options and funds / providers for our requirements.Answer
Although the Government has closed CTFs for new babies and scrapped plans for the £250/£500 top-up at age 7, existing CTFs can run until maturity - although I suspect they'll be merged into Junior ISAs at some point. Anyway, good to hear you're topping up your daughter's, it should help give her a flying start to adulthood.

As for investing a monthly contribution into stock markets, an investment fund (e.g. unit or investment trust) is likely to be the most practical route. Plus it makes spreading risk easier.

You could use a pension, but your daughter won't be able to access the money until age 55 (probably higher still by the time she reaches that age). If you'd prefer this money goes towards her retirement rather than late teens then by all means consider a low cost stakeholder pension - she'll benefit from basic rate tax rebates on contributions, i.e. an £80 contribution will be grossed up to £100.

Buying funds via a 'platform' (using a designated account or bare trust - details here) and using a discount broker is likely to be the most cost effective and flexible route. Using a platform makes it simple to mix and match funds from a wide variety of different managers and subsequent fund switches are fast and straightforward. While discount brokers help to cut costs by rebating sales commissions. Take a look at our Guide to ISA discounts for more details (it largely applies to funds held outside of ISAs too).

As for funds, if you don't mind a fair bit of risk along the way I think emerging markets remain a good bet over the next 15 years, perhaps consider funds like Aberdeen Emerging Markets and First State Global Emerging Markets Leaders. But you may want to temper such risks with a UK equity income fund, where dividends and a focus on cash rich companies can help weather turbulent markets. Funds with good track records include Invesco Perpetual High Income and Threadneedle UK Equity Income.

Of course, once the investments starts building up to a reasonable size you might consider diversifying further.

Good luck!

Read this Q and A at http://www.candidmoney.com/questions/question612.aspx

M&S Premium Current Account review

Marks & Spencer is seeking to spread its 'cut above the rest' branding to the lucrative world of banking with the imminent launch of a new current account (backed by HSBC). But with annual charges of up to £240 do customers stand any chance of getting a decent deal?

The M&S Premium Current Account comes in two flavours, an account costing £15 per month promising various 'extras' in return and another costing £20 per month which also includes worldwide family travel insurance. Both require you pay in a minimum of £1,000 per month.

M&S usually excels at customer service and I wouldn't expect its bank to be any different - after all, it has to protect the mother brand. And, for some, maybe this alone is worth the hefty annual fee - especially if they're not internet banking converts who still use branches and call centres (the M&S call centre will be based in the UK).

But for most, the decision rests on whether the various extras more than justify the monthly fees - because ultimately you'll be paying for a plain vanilla current account with some sweeteners thrown in. Let's take a look at each in turn:

Overdraft facility

Nice and simple with no overdraft fees. The first £100 of overdraft is interest free, after which 15.9% interest is charged up to the £500 limit. The interest rate is high, but still below the 19.5% market average. I doubt prospective customers will rely heavily on overdrafts, but the lack of fees is welcome.

No debit card charges ATMs abroad

Useful if you travel frequently as it could save around 2.5% (often with a £3 minimum) on withdrawals. However, not as good as cards like Halifax Clarity or Sainsburys Gold which also remove foreign currency 'loadings' of around 3% on both spending and cash withdrawals.

Hot drinks vouchers

48 vouchers for a hot drink at in-store cafes. These are apparently worth £127, although you'll probably end up spending more than this on cakes and snacks to accompany your free drink.

Treats & Delights vouchers

4 vouchers which M&S values at £45. No details yet of exactly what treats or delights you'll get, but probably high margin stuff which ultimately costs M&S a lot less than £45. Again, nice if you'd bought the items anyway otherwise of little value.

M&S Vouchers

£40 of M&S vouchers. Welcome if you'd spend the money at M&S anyway

Birthday Gift

A free gift on your birthday valued at £10. Nice if it's something you'd bought anyway, but potentially pointless.

6% Savings Account

You'll have access to a savings account paying 6% interest on a monthly saving between £25 and £250 over 12 months. If you want to save spare monthly cash anyway it's a good deal (although other banks often offer similar deals), but bear in mind it's equivalent to 3.2% interest on a lump sum over the year - competitive but not earth shattering.

M&S Reward Vouchers

For every £1 you spend at M&S on your debit card you'll get 1 reward point, notionally worth 1p. So you'll effectively get 1% cash back on your M&S shopping (provided you use your M&S debit card)to spend at M&S in future. Alternatively, you could just use a cash back credit card (e.g. Amex) and get real cash rather than vouchers.

Travel insurance

A worldwide annual travel insurance policy covering you, your partner and children/grandchildren (provided they're under 18). However, excludes anyone aged 70 or over. This is a good policy and would probably cost around £100 a year if you tried to buy similar cover elsewhere, so well worth an extra £5 a month if you need family cover.

Discount vouchers if you switch your current account (1st year only)

Move your banking across to M&S and you'll receive 12 vouchers (1 per month), each giving 20% off a M&S spend of up to £250 - food and electrical items excluded. Worthwhile if you plan to spend a lot on clothes and household furniture/items.

Ignoring the discount vouchers, M&S estimates these goodies are worth £337 a year, rising to £582 with the travel insurance. Of course, they're exaggerated using the old trick of assuming you'd otherwise pay top whack for travel insurance, so how much are the extras really worth?

Let's ignore the overdraft, savings account and debit card cash back/foreign ATM fees, as they may not apply to everyone and you can get similar deals elsewhere.

Assuming you're a regular M&S shopper who likes a hot drink and would use the various vouchers you'll probably get around £220 of annual benefit, rising to £320 if you chose the travel insurance option. And if you plan to use the discount vouchers you could obviously save a lot more over the first year. This compares to an annual cost of £180 and £240 respectively, so the account looks reasonable value.

But, if you don't much care for the hot drinks the likely benefit falls to around £95 and £195 respectively - and even less if you don't use the various vouchers or like the birthday gift. A far from compelling deal.

This is clever M&S marketing, the hot drinks and other vouchers cost them a fraction of the retail price, so M&S is likely quid's in (via the annual fee) before they even start making money from current account deposits (on which they pay no interest).

Die hard M&S customers may benefit overall if they'd spend the hot drink/voucher money anyway. But for the rest of us this account is likely to prove poor value unless you place a high price on customer service, which is likely to be excellent.

Read the full review at http://www.candidmoney.com/candidreviews/review62.aspx

Borrow to invest?

Question
I operate a current account and use an overdraft. I have raised capital as much as my borrowing power will allow and am thinking of saving some money to invest in real estate. Should I open a savings account or leave the money in my current account to save me some overdraft interest?Answer
Borrowing to invest (known as 'gearing') is a risky game, especially when paying sky high overdraft interest rates.

If you're paying anywhere near the average overdraft rate of 19.5% then forget it - pay off the overdraft. You won't find an investment with the potential to generate these kinds of returns unless you take a significant amount of risk, which could leave you facing losses and maybe having to borrow more money to manage your debts - a dangerous downward spiral.

Even if you could borrow money cheaply I'm not sure I'd use it to invest in the current climate, not unless you can comfortably afford to lose it, as markets are too volatile.

So yes, I'd suggest leaving the money in your current account to avoid paying overdraft interest. And, if you find yourself sitting on some spare cash having paid off borrowings then perhaps open a savings account where you can safely build up some rainy day money to avoid the risk of needing to use an overdraft in future.

Read this Q and A at http://www.candidmoney.com/questions/question608.aspx

Capital gains on foreign property?

Question
My question relates exclusively to the rates of exchange allowed by the Inland Revenue on Property Capital Gains Tax. I am strugling to find any clear guidance on the HMRC site. I easily find the the listing made for euros ( up to eight decimal places!) for the dates that are relevant to me but I am not sure whether they are applicable for CGT purposes. If they are, I am not clear as to whch of the rates for each year I may use. I do not have actual rates of exchange as I transferred amounts to France on a round sum basis over the eight year period of ownership and accessed them as required for the many improvement projects which we undertook.

The HMRC rates are accessible at http://www.hmrc.gov.uk/exrate/european-union.htm

Many thanks for your guidance.Answer
Let's start with the simple bit first. When calculating the gain on investments in a foreign currency HMRC requires you to use the exchange rates on the date you purchased the property and date you sold it. Quite straightforward.

However, you can reduce the gain on second homes/investment properties by deducting money you've spent on improving the property and buying/selling expenses - note: general maintenance and repair expenditure is excluded.

In theory you should use the exchange rate for every allowable deduction at the time each expense was incurred. If this is impractical HMRC would probably be comfortable if you instead simply deduct each chunk of money you transferred over the 8 years using the exchange rate on the date of each transfer (which I guess you can get from your bank statements if you didn't keep a log) - not forgetting to remove from those transfers amounts that weren't spent on improvements or other allowable deductions.

If you are subject to any French gains tax this may be credited against the UK liability

As ever with the taxman, provided you're not actively trying to evade tax then you shouldn't have any issues. However, it might be worth running the above past their telephone helpline to cover yuourself (although in my experience the helpline is soemtimes as useful as a chocolate teapot!).

Read this Q and A at http://www.candidmoney.com/questions/question604.aspx