Junior ISA rules confirmed

The Government has today confirmed final details for Junior ISAs, to be launched on 1 November 2011. How will they work and will they be worthwhile? .

The concept is the same as conventional ISAs - they're a tax wrapper that can surround cash or investments, making interest tax-free and ensuring no further tax is deducted on dividends.

What's different with Junior ISAs?

There are three key differences compared to conventional ISAs:

• The annual contribution limit is £3,600 (not £10,680) until 5 April 2013, after which it'll increase annually with inflation (CPI).


• There is no restriction how contributions are split between cash and stocks & shares (in a conventional ISA the cash contribution is capped at half the total annual allowance).


• Children will only be able to hold one cash and one stocks & shares account at any time. So, unlike adults, they won't be able to potentially use a new ISA provider each year.

Which children are eligible?

All UK resident children under 18 who don't already have a Child Trust Fund will be eligible to open a Junior ISA - which basically means children born before 1 September 2002 or after 31 December January 2010.

When can the child get their hands on the money?

A child will be able to take responsibility for their Junior ISA from their 16th birthday, but will not be allowed to make any withdrawals until they reach 18. The only exceptions are on death or if the child is diagnosed with a terminal illness.

Assuming the child doesn't fully withdraw the money at 18 then the Junior ISA will be converted into a conventional one - after the ISA provider obtains the child's national insurance number and confirms they're still a UK resident.

Who can contribute?

Anyone can contribute into a child's Junior ISA, subject to total contributions not exceeding the annual limit. A Junior ISA can be opened by someone who has parental responsibility for the child and it'll be their job to manage it until the child reaches 16.

Will the government make any contributions?

No. It's too strapped for cash, which is why it stopped child trust funds (where the government did contribute some money on behalf of the child).

Will transfers be allowed?

Yes, but the child must stick to the rule of having only one cash ISA and one stocks & shares ISA account at any time (i.e. no more than one provider for each). However, it will be possible to transfer a Junior cash ISA into a Junior stocks & shares ISA and vice-versa.

What sort of choice will be available?

Too soon to tell. There are only a handful of child trust fund providers so Junior ISAs might suffer the same fate. Expect a few of the larger banks and some building societies to offer Junior Cash ISAs and hopefully at least one fund supermarket will offer a stocks & shares Junior ISA to ensure decent, cost effective, investment choice - child trust funds generally only offered overpriced trackers and a handful of expensive actively managed funds.

The rules covering what types of investments will be allowed within a Junior stocks & shares ISA will be the same as conventional ISAs - in broad terms most investments excluding shares traded on AiM (see our ISAs page for more details).

Can child trust funds be transferred into Junior ISAs?

No plans to allow this at present (although assuming Junior ISAs don't flop I'm sure it'll be allowed in future). The annual top-up limit for child trust funds will however be raised from £1,200 to £3,600, in line with Junior ISAs.

How much might a child build up by the time they're 18?

Here's a table with a few estimates and use our Junior ISA Calculator to get a clearer idea of how much your child might accumulate by the time they're 18.

Monthly Saving	3% Annual Return	6% Annual Return
£25	£7,138	£9,570
£50	£14,276	£19,140
£100	£28,552	£38,280
£200	£57,104	£76,560
£250	£71,380	£95,703
£300	£85,656	£114,844
Assumes monthly saving over 18 and annual returns are after charges.

Will Junior ISAs be worthwhile?

The cynic in me says what's the point? Most of the population can't afford to save enough for their own comfortable retirement, let alone save money for children or grandchildren.

However, there are probably sufficient numbers of parents and grandparents who can afford to save for children to ensure that Junior ISAs are viable. In that case their appeal will largely depend on choice, rates offered (on cash) and charges.

It's already possible to save tax efficiently for a child using a 'bare' trust (see our < ahref="http://www.candidmoney.com/kids/default.aspx">child savings page for more details). However, it's a bit of hassle and there are restrictions on how much interest a child can earn on gifts from parents before it's taxed as the parent's (£100 per parent per child).

So while Junior ISAs are unlikely to offer anything new, they should make tax efficient saving for a child more straightforward for some. And there might be some juicy interest rates on Junior cash ISAs at launch that could be worth taking advantage of.

Read this article at http://www.candidmoney.com/articles/article239.aspx

How to find value of US stock certificates?

Question
I am trying to sort out a series of US stock certificates that I believe are part of a boiler room fraud scam: is there a register of shares or companies that i can access to quickly ascertain if these are worthless?Answer
If the stocks concerned are traded on a mainstream stock market then getting their value should be as easy as a quick search on the web - sites such as google or yahoo finance should display current trading prices.

But if they're listed on an obscure stock exchange then getting a share price could prove harder. I'd start by checking the US Securities Exchange Commission (SEC) EDGAR database, where all listed companies must regularly file certain documents. It won't give you a share price, but should confirm whether the company still exists and on what exchange it's listed. You could then contact that stock exchange for further details.

If the company is not listed on an exchange then getting hold of a price might prove nigh on impossible, because this depends on finding interested buyers and seeing what price they'll offer. It's also far harder to get access to US company information and accounts than in the UK because companies are incorporated at a state level in the US, I don't believe there's a single equivalent of Companies House. If you can determine which state the companies were incorporated in you can then potentially get more information from the state concerned, there's a list of links on the Companies House website.

Good luck and I hope the shares are worth something.

Read this Q and A at http://www.candidmoney.com/questions/question543.aspx

Should my wife top up her state pension?

Question
My wife worked for 12 years, was at home looking after our children for the last 12 years, and has most recently been back in employment for 2 years; what can we do about voluntary contributions to her state pension; does she qualify for HRP?Answer
Home Responsibilities Protection (HRP) was scrapped on 6 April 2010 in favour of giving national insurance credits to parents who receive child benefit for a child/children under age 12.

However, your wife would have looked after your children while HRP was still in force, so she should have automatically built up an entitlement under that scheme. HRP worked by reducing the number of years of national insurance contributions required to enjoy a full state pension by one year for every year child benefit was received for a child under 16, subject to not reducing the qualifying contributions required below 20 years.

Her HRP benefits will be converted into qualifying years under the new system (up to a maximum of 22 years), likely to be 12 years in her case. This leaves a further 18 years of national insurance contributions needed to reach the required 30 years for a full basic state pension. It sounds like she has 14 of these, so provided she works a further 4 years before retirement she should receive the full basic pension.

However, rather than rely on my guesstimates, much better to get an accurate projection via the State Pension Forecast. It's not unknown for forecasts to sometimes omit HRP (converted into a national insurance contribution credit), if so then contact HMRC (ideally with her child benefit number) and they should correct this.

As for paying extra contributions, this usually makes sense when due to retire with less than 30 years of service. Extra service can be purchased via class 3 national insurance contributions, currently at a rate of £12.60 per week of service, i.e. £655.20 for a year. Given each £655.20 buys 1/30th of the full basic state pension for life, £177.06 a year rising by the higher of earnings, prices (CPI) and 2.5%, it's likely to end up a good deal.

Read this Q and A at http://www.candidmoney.com/questions/question542.aspx

Question
I'm hoping you may be able to advise me as I'm in a difficult situation at present after losing my long standing job due to ongoing illness. I was given a small payout (7k) and want to try and need to live on some of it and save some, hopefully to make as much on it as possible. I already have an ISA with 3k in it on a 3% deal with Halifax from 2010- transferred over to the latest deal they have for 3.2% (I think).

I need my finances to be secure, so cant invest in anything too risky, however I need to maximise interest/money made on it as this money is to live on. I know about ISA's and was thinking of perhaps opening a new ISA for this year as I believe I can do that as the Halifax one is a transfer from 2010, so is 2010's fund. I was thinking of the Santander one of around 3%. Is there something that would make me more money, such as shares/tracker funds?

Any advice would be a great help.Answer
I'm sorry to hear about your situation. I think investing in the stock market is probably the last thing you should do - far too risky given you can't afford to lose money - so you're right to focus on savings accounts.

Cash ISAs can be beneficial as the interest is tax-free. I assume you're a taxpayer for the current tax year (runs from 6 April 2011 until 5 April 2012) due to your earnings from when you were working, so a cash ISA would be of benefit. And, in any case, the rates tend to be competitive so there's really no downside to using a cash ISA over a conventional savings account.

The Santander Flexible Cash ISA currently pays the highest variable rate at 3.30%, which includes a 2.8% bonus over the first year. On the maximum £5,340 allowed contribution this would pay annual interest of £176 - hardly worth getting excited about, but it's the best rate you can currently get on cash without tying up your money.

Opting to tie up your money on a fixed rate will give slightly better rates, up to 4.65% fixed for 5 years within a cash ISA with Birmingham Midshires, but I think this could prove too inflexible given your uncertain situation.

Outside of a cash ISA the current 'best buy' instant access savings accounts are the Derbyshire BS NetSaver at 3.11% and Coventry BS Poppy Online Saver at 3.10%. Like Santander, they both include temporary bonuses so be prepared to shop around when the rates come off the boil.

I'm sorry I can't offer you a more profitable solution, but I don't think there is one that'd be appropriate. You could earn annual dividend income of around 5-6% (net of basic rate tax) by investing in some stock market income funds (e.g. Schroder Income Maximiser), but then stock market falls of around 10% - 20% are not out of the question and I really don't think it's worth you taking such risks (as mentioned above).

As an aside, I'd suggest checking which state benefits you're entitled to (if you haven't already). There's a helpful tool on the http://www.direct.gov.uk/en/diol1/doitonline/doitonlinebycategory/dg_172666 Direct Gov website - may as well try and get some benefit from all the tax you've paid over the years!

I hope things work out.

Read this Q and A at http://www.candidmoney.com/questions/question540.aspx

Good account for short term savings?

Question
Do you have any thoughts on the Saga Telephone Saver I've just be told about?

I'll shortly be having some National Savings Certificates mature and am thinking of putting the money into this Saga account for future use to buy a car, new kitchen and bathroom and am told this would be a good place to hold it whilst deciding on best deals on all these items.Answer
The Saga Telephone Saver account is a straightforward instant access savings account provided by Birmingham Midshires. The interest rate is currently 2.75% (before tax), which includes a 1% bonus during the first year - such bonuses being usual for most 'best buy' accounts these days.

When you open the account it's linked to one of your existing accounts (e.g. current account) so when you request withdrawals (by telephone) the money is sent straight over (usually arriving within 3 days). There are no restrictions on withdrawals, so it sounds like it'll suit your needs.

My only suggestion is that there are other similar accounts on the market paying more interest and if you're a taxpayer who hasn't used their ISA allowance this year then a cash ISA would be advantageous as interest is tax-free.

For example, at the time of writing the Derbyshire Building Society NetSaver account pays 3.11% (including a 2.11% bonus until November 2012) and allows withdrawals to a linked account via the Internet.

And Santander pays 3.30% on its Flexible Cash ISA, including a 2.80% bonus for the first year. Instant access withdrawals are allowed by Internet, phone or branch.

The only downside with accounts such as these paying bonuses is that you can more or less guarantee the rate will become uncompetitive when the bonus ends. So just be prepared to shop around and move the money elsewhere in future if there's any money left in the account when the bonus expires.

As to how much difference the various rates above would make, here's a quick example showing the annual interest, after tax, per £10,000 of savings. I've assumed the rates don't change from current levels:

Account	non-taxpayer	basic rate taxpayer	higher rate taxpayer
Saga	£275	£220	£165
Derbyshire	£311	£249	£187
Santander	£330	£330	£330

You obviously have the option to roll-over the maturing Savings Certificates into another issue, but since you'll need to the leave the money untouched for at least a year to stand a chance of getting a return it sounds too inflexible for your needs.

Good luck bargain hunting on your car, kitchen and bathroom, there should be lots of good deals around in the current climate!

Read this Q and A at http://www.candidmoney.com/questions/question539.aspx

Good value will service?

Question
I and my husband are on the point of making a second will as the first one we made 25 or so years ago is now not fit for purpose. As there is so much choice for us in the world today, I do like to do a little research before making up my mind who I would like to give my business to.

Last week we attended a seminar called Universal Asset Protection which was very informative but the one thing I forgot to ask was if they were a regulated company. As you have been extremely helpful to me in the past, I thought you may be able to help me out on my query and have any advice you can give me in my quest to get a good price deal as some solicitors are charging extortionist fees!

I have also been quoted package deals which include:-

Will including Discretionary Will Trust,
Lasting Power of Attorney - property and affairs
Lasting Power of Attorney - health and welfare
Severance of Tenancy (Tennants in Common) if applicable
Letter of Wishes

The total price is £995 plus VAT for a couple.

Would you consider this as a good price for the package?

I look forward to hearing from you and once again, Justin, many thanks for your previous responses - most helpful - better than having a bank manager in your wardrobe!Answer
The biggest rip-off when it comes to will writing is the companies concerned appointing themselves as executor of the will and subsequently charging extortionate fees to carry out these duties when you pass away. The executor's job is to ensure the correct amount of inheritance tax, if any, is paid and that everyone named in the will gets their share of your estate – a process called ‘probate'. In my view it's better to nominate a trusted relative or friend, who can either carry the task themselves or appoint a reasonably priced professional when the time comes.

Anyway, back to the present. Based on typical solicitor prices the amount being charged doesn't look horrendous, but equally it's not cheap. Universal Asset Protection's website contains little information, but I get the impression they're a marketing company that passes on the work to other professionals. As this inavariably involves sales commisison type arrangenments it might bloat costs, but hard for me to comment as I don't know their business.

Discretionary will trusts are less useful than they once were. These used to be popular to ensure that the first partner to pass away could use their full nil rate band (e.g. passing assets to children/grandchildren while ensuring the trust kept control), but rule changes in 2007 mean that any unused nil rate band on first death can now be passed to the surviving partner. Where discretionary will trusts can potentially still be worthwhile is if you want the flexibility to include as yet unknown beneficiaries (e.g. grandchildren not yet born), you're concerned that the value of assets will rise faster than the nil rate band after the first death or you want to remove assets from the estate over concerns the surviving spouse may have to use them to fund long term care (e.g. your home might be held as 'tenants in common').

However, bear in mind that if the value of assets placed into the discretionary exceeds the nil rate band a 20% 'lifetime chargeable transfer' tax will apply, followed by a further tax of 6% every 10 years.

Assuming you would benefit from such a will then the going rate for a straightforward scenario seems to be around £300-£600 inc VAT (for a couple).

Lasting Powers of Attorney can be helpful if concerned that you might one day be unable to make sensible decisions on your finances and welfare, perhaps due to suffering from Alzheimer's. Solicitors tend to charge around £100 - £200 per power of attorney (so £400+ to write each for both you and your husband).

But there's a further cost charged by the Office of the Public Guardian (OPG), the government department responsible for lasting powers of attorney, of £120 per power of attorney registered, so £480 in this instance. I doubt your quote includes this - it's good value if it does!

Tenancy in common tends to be a good thing (it means a husband or wife can pass their share of a property to beneficiaries on their death, making use of their nil rate and getting the assets out of the survivor's estate) so I'm not sure you'd want to sever any existing arrangements, but this will obviously depend on your situation and requirements.

Letters of wishes are not legal documents, but can be used to inform executors of your assets and any special wishes, e.g. burial/creation plans and how you'd like any trusts to be managed. There's little reason not to simply write this yourself, but a solicitor would typically charge £100+.

I'd also check whether the quote includes compulsory storage costs, as these can become significant over time. If you'd prefer not to keep a will at home (there's no reason not to provided you're confident it'll be safe) there are companies offering storage services from around £15 per year.

In terms of cheaper options, I recently stumbled across a company called Beneficient Law - interesting as they're run as a not-for-profit community interest company. I've not used them (so can't vouch for the quality of their work or service), but they seem to have favourable feedback on the web and charge very sensible fees. For example, their fee for two wills is £50 and £70 for two lasting powers of attorney.

Do any readers have experience of this company or feedback on will writing prices?

Read this Q and A at http://www.candidmoney.com/questions/question536.aspx

How best to buy gold?

Question
I would like to take out a long-term investment. Maybe about 5 - 10 years.

I have £70,000 to invest.

I'm thinking about buying gold.

I can't afford to buy a gold bar, so I was thinking about buying gold coins.

How would I go about this ?

The only gold company I know of is Johnson Matthey.. I believe they are a bona fide company, so I've thought of buying through them.

What would you advise?Answer
If the £70,000 will represent most of all of your investment pot then I'd be very wary about putting it all into one type of investment. Spreading it across a range of investments should reduce risk, as if one investment bombs you won't lose your shirt.

As for gold, with global turmoil more likely to increase than decrease there is an argument that the price will rise further still. However, bear in mind that much of the recent price rise has been due to higher demand from investors rather than for jewellery (which normally accounts for the majority of demand). Jewellery demand will likely rise longer term as emerging markets grow, but if investors sell off shorter term then the price could fall quite sharply. The latter is unlikely to happen while markets are struggling, but is very likely once global economies are more settled again (which could be some years away). More info in my article here.

As for how to invest, buying physical gold coins or bars (they come in various sizes) is one route. Smaller coins and bars tend to sell for a premium to the actual gold price, plus you'll need to factor in costs for storage and insurance (it's generally not a good idea to store lots of gold at home). Nevertheless, it's a straightforward way to invest and provided you buy from an established dealer who certifies their coins/bars you should be fine. Or you could consider services like Bullionvault that store the gold for you (see my answer to this question).

A convenient alternative is to track the gold 'spot' price using exchange traded funds such as ETFS Physical Gold and Gold Bullion Securities (cost is about 0.4% a year plus stockbroker dealing fees to buy and sell (£10 or less online). These funds back your investment with gold bars, so should theoretically be safe. Or you could look at the Perth Mint Gold Certificate Program (see my review here).

A further option is to buy shares in gold mining companies, either directly or via an investment fund. Share prices tend to exacerbate gold price movements and there's operational risk too (e.g. the company might suffer production problems at one of its mines), so the risks tend to be higher.

Good luck whatever you decide.

Read this Q and A at http://www.candidmoney.com/questions/question533.aspx

Does 4 year 2.99% Abbey fixed mortgage exist?

Question
In the money section of last Sunday's Sunday Telegraph, in the front page article by Kara Gammell, she says that Abbey, which is the broking arm of Santander is launching a 4 year fixed mortgage for up to 60% of value, at 2.99%, but I cant seem to find this anywhere. Can you help or is this journalistic make believe?Answer
Abbey for Intermediaries only offers mortgages via mortgage brokers, so you want find any details on the usual Santander website. However, I've just taken a look at the Abbey for Intermediaries website and the deal doesn't appear there either.

There is a 4 year 60% LTV fixed rate of 3.99% which launched on 15 July, so the article either contains a typo or the journalist has had advance warning that Abbey will be cutting the rate to 2.99% in future - something the rest of us don't know about yet. If the latter it'll be a great deal for those worried that rates will rise over the next 4 years!

Incidentally, there is a 2.99% rate, but it's only fixed for 2 years.

I've put in a request to Santander for clarification and will post an update below when I get one.

Read this Q and A at http://www.candidmoney.com/questions/question531.aspx

Why no stamp duty on some investment trusts?

Question
I've noticed that I don't pay Stamp duty on some of my Investment Trust purchases, such as

Genesis Emerging markets
Henderson Far East Income

but I do pay 0.5% stamp duty on other IT purchases made at the same time. They all appear to be LSE listed and denominated in GBP and conventional ITs so I can't see why they're treated differently. Could you explain the reason behind this?Answer
A quick check of the HMRC rules suggests that stamp duty on share purchases via a UK stock exchange doesn't apply if the shares are in a foreign company who doesn't keep a register of shareholders in the UK. This is the rule that permits exchange traded funds (ETFs) to be exempt from stamp duty.

As the Genesis IT is domiciled in Guernsey and the Henderson IT in Jersey, then assuming they don't maintain a shareholder register in the UK they'd benefit from the same rules - hence the reason you didn't have to pay stamp duty when buying them.

Read this Q and A at http://www.candidmoney.com/questions/question530.aspx

What happens when a country runs out of cash?

Question
What happens when a country runs out of money and the income cannot meet it's obligations. Assume it has it has issued all the bonds that the market can take (now Junk) and is borrowed to the hilt.Answer
I suppose one of several scenarios, probably in an order of preference along the following lines:

1. Print more money - it seems obvious, if you run out of money then print some more. The trouble is, unless the extra money is backed by real assets (e.g. gold) then it's arguably worthless. A big increase in money supply would simply push up prices and devalue the currency (i.e. weaken the exchange rate versus other currencies). While a bout of high inflation would be good news for the government concerned (as their debt would fall in real terms) it would probably push their economy into an even deeper hole. Plus, if the country concerned is part of a common currency (e.g. the euro) then it doesn't have the autonomy to print more money anyway.

2. Seek bailouts - it's generally in no-one's interests for a country to go bust. It creates panic in markets, potentially rocks the global financial system and leaves those owning government debt out of pocket. Bailouts, whether from the IMF, EU(if relevant) or other sources won't solve the underlying problem (a country is spending more than it earns), but it buys time for a country to try and shore up their finances (i.e. raise taxes and cut spending) and get back to a position where they can once again borrow money via the markets. The downside is that the terms can sometimes be expensive for the destitute country and propping up economies that have little chance of getting back on track is simply delaying the inevitable (default). This, I believe, is the case with Greece.

3. Default - this means stopping interest payments on debt (i.e. government bonds) and even writing off the bonds altogether. While writing off debt is the simplest option, it's quite extreme. It'll cause big panic, government bond holders (which includes foreign banks) will lose their shirts, the local population will scramble to withdraw their money from banks (probably making the banks insolvent) and the ramifications will be felt across markets around the world. It also makes it difficult for the country to borrow in future, as its credibility will be shot. However, the aftermath doesn't necessarily last forever, Argentina defaulted in 2001 - a disaster at the time. But its economy has subsequently grown quite strongly and the country has, to an extent, bounced back.

I realise these are very simplistic explanations and there may be more scenarios (readers, if you have any opinions please post below), but they'll hopefully give you a general idea of what tends to happen when a country runs out of cash.

Read this Q and A at http://www.candidmoney.com/questions/question529.aspx

How much trail commission is being paid?

Question
More on RDR

Following your previous helpful comments I was interested to read the Treasury Select Committee report on RDR, just released, with increasing cynicism.

There was an interesting comment that some providers are increasing the level of trail commission paid to intermediaries in advance of the RDR deadline, currently given as January 2013. Is there any evidence that the recent "inexplicable" rises in annual charges by Henderson (for Gartmore companies) and certain Standard Life Funds translate into greater trail commission to advisors, no doubt to assist them in dreaming up their best recommendations in the shortening period left?

There's also the interesting statement in their final Conclusions, para 5, that "There is already full disclosure to customers of the cost of the advice they receive, whether paid for via commission or fees. However, as both advisers and the FSA have told us, many consumers appear to see financial advice as being 'free' under a commission based system, despite adviser disclosure of its actual cost." Does "full disclosure" mean a standard statement hidden in the small print of "terms and conditions" because I have never seen a statement of actual annual cost in pounds and pence in any correspondance from HL, Bestinvest, Chartwell or Fundsnetwork regarding myself or my wife over many years?Answer
I can't recall any examples of trail commission payments increasing recently, with the vast majority of funds continuing to pay the 'standard' 0.5% a year. Nevertheless, I'm sure there are some funds that pay more (as well as less), such is life in an open market.

I don't think the recent annual charge hikes by Standard Life and Henderson/Gartmore will result in higher trail commissions being paid, the increases seem to be more motivated by the fund managers simply wanting to increase their revenue. But I share your concern that there's a risk we'll see some funds raise charges to pay higher sales commissions to advisers (because it'll probably result in more sales).

I'm generally a fan of RDR, but am exasperated at how much money and manpower the FSA has probably thrown at trying to solve a ridiculously easy problem - bias and mis-selling caused by sales commissions. The answer takes all of about 10 seconds to work out - ban commissions and force product providers to price their products accordingly. Even better, remove platform fees from products as well so the public can effectively buy funds at institutional rates, i.e. the same price as large pension funds.

This approach ensures total transparency. We, the customers, can buy products at rock bottom prices if we don't want advice or to use a platform. If we want these facilities then they'll be explicitly priced so we can shop around for a good deal - ensuring competitiveness in the marketplace.

At the moment RDR appears to be stopping commissions (although advisers will be able to get customers to sign a piece of paper that lets them take their charges from products - effectively the same thing) but will allow platform fees to continue being bundled into fund charges - a mistake in my opinion.

Yes, the current rules do require financial advisers and discount brokers to disclose how much commission they expect to receive when you transact through them. However, your suspicions are correct, they can be hidden away in smallprint - within a 'key features' document. It would be far better if advisers and brokers were compelled to include this information in the annual statements/valuations they send you (and, even better, online). However, you could request they confirm the amount of trail commission they receive (as a percentage) for each investment held, along with the extent any is rebated to you.

In the case of advisers/brokers who also run their own platform (e.g. Hargreaves Lansdown) it's a bit more complicated as they also receive a platform fee from fund providers which doesn't have to be disclosed. So, for example, they might receive 0.5% trail commission and a further 0.25% or more via a platform fee - but we've no way of knowing how much the latter actually is. My concern is that some fund providers might pay higher than usual platform fees to induce an adviser/broker to promote a fund more heavily via their platform - back to the usual problem of remuneration potentially causing bias...

Read this Q and A at http://www.candidmoney.com/questions/question528.aspx

All about nominee accounts

Nominee accounts are commonplace nowadays, but do you understand the implications of using them?.

Ok, apologies for writing about a dull subject. But despite most of us holding at least some of our investments via nominee accounts these days, they're generally not well understood - especially when it comes to security and compensation scheme cover.

So please take a quick read, I'll keep things succinct.

Before nominee accounts...

Traditionally when you bought shares or funds, you'd be the registered owner and receive a certificate confirming this. This makes it very easy to sell shares via any stockbroker and your name will appear on the share register, ensuring you can vote and receive any shareholder perks.

However, the certificate system makes dealing cumbersome (as you have to send your certificate to the stockbroker before being able to sell) and expensive (more admin for the stockbroker). And it also delays switching funds between different managers - you have to sell units in one fund, wait for the proceeds then re-invest with the new manager.

What are nominee accounts?

Nominee accounts are separate companies owned by stockbrokers or fund platforms that hold shares or funds on behalf of all their customers. For example, suppose 100 customers of stockbroker A each buy 1,000 BP shares, then the nominee company (i.e. account) will hold 100,000 BP shares and be the registered owner. The nominee account's terms and conditions will state that the customers are the 'beneficial' owners of 1,000 BP shares each.

The same is true of fund platform nominee accounts - plus the platform will bundle together all customer buy and sell instructions for every fund each day, then place a single net buy or sell order per fund with the underlying fund managers.

Put simply, a nominee company owns the shares or funds but promises to pay customers what they're owed (i.e. dividends and proceeds when shares/funds sold, or the shares/units themselves if you move the nominee account to another broker).

Why are they popular?

Nominee accounts have become commonplace largely because they facilitate online and telephone dealing. The benefit to customers is faster, simpler dealing (cheaper too in the case of shares). Plus fund platform nominee accounts allow investors to hold funds from multiple fund managers - helpful when it comes to switching or holding them within an ISA.

Stock brokers like them because it significantly cuts down on their hassle and expense, while fund platforms collect a fee from either fund managers or customers for offering the service.

Are they safe?

Yes, but they're not immune to fraud.

Nominee companies are separate entities from the stockbroker or fund platform that set them up. If the broker goes bust the shares/funds/cash held in the nominee company are ring fenced, hence unaffected. It might take a while to get the assets re-assigned to you, but they'll be safe.

However, if the stockbroker or fund platform was illegally dipping their fingers into the nominee company then you could lose money.

Are nominee accounts covered by compensation schemes?

As explained above, if the stockbroker or fund platform goes bust your shares/funds/cash should be safe. But if fraud has taken place the Financial Services Compensation Scheme (FSCS) would normally step in (provided the stockbroker/platform is covered by the scheme - they should be if based in the UK and regulated by the FSA).

FSCS compensation gives up to £50,000 protection per institution per person, i.e. £50,000 of cover per stockbroker or fund platform. So hold more than this and you could potentially lose money in the unlikely event of fraud and the broker/platform not being able to repay what you're owed.

If you hold bank accounts or funds within a nominee account then these will normally be covered individually too,, i.e. cash will be covered up to £85,000 and funds £50,000 - both per institution (i.e. bank/fund group) per person. But this is protection against the underlying bank/fund manager not being able to repay you - a totally separate issue from the nominee account.

The pros & cons of nominee accounts

Pros	Cons
Cuts administration Low cost Aides faster dealing	Accounts over £50,000 not fully protected No access to voting and shareholder perks (although some brokers do offer a workaround)

The alternatives

Shares

It's still possible to deal using share certificates, but increasingly rare. If you want the benefits of online dealing while being the registered owner of the shares you'll need to use a Crest Personal Account. Stockbrokers must apply for this on your behalf and it costs them £10 a year, but don't be surprised if they try and charge you a lot more than this. The downside is that these can't be used for ISAs and few stockbrokers currently offer the facility.

Funds

The only current alternative is to buy funds directly from fund managers - straightforward, but quite cumbersome if you hold a number of different funds.

Summary

On balance I think nominee accounts are a good thing. Just make sure you trust your chosen stockbroker or fund platform. And, if you are worried, cap your holdings to £50,000 per broker/platform.

Read this article at http://www.candidmoney.com/articles/article238.aspx

Reclaim foreign withholding tax in SIPP?

Question
Could you please clarify how withholding tax works for foreign shares held within a SIPP?

My issue is that my SIPP provider does not provide any support in claiming back part of the withholding tax on US or European shares (I know that I should be able to claim back anything above 15% due to bi-lateral agreements between UK and US/European countries).

If I wanted to do that by myself, will I have to contact the tax offices in each country?

If so, how will I get around the fact that the shares are held in a nominee account, therefore are not in my own name? (which is standard practice for SIPP/ISA accounts).Answer
For the benefit of other readers, foreign withholding taxes are often deducted from dividends paid by foreign companies to investors who are tax resident in a different country. For example, 30% withholding tax is normally deducted on dividends paid by US companies to UK investors.

As you point out, the UK has double taxation agreements in place with many countries that usually allow you offset some of the foreign withholding tax against your UK liability. Although the offset amount varies between countries, it's most commonly 15%.

In the case of the US it's possible to complete form W-8BEN to reduce the rate of US withholding tax from 30% to 15%, but if the country concerned doesn't have a similar agreement a tax refund must be sought from the tax authority in the country concerned - which can be harder than getting blood from a stone (from what I've heard some take a long time to pay while others don't bother).

Holding foreign shares in a SIPP or ISA makes no difference, the withholding tax is still deducted. So it's a real pain that your SIPP provider doesn't handle the above for you.

If you want to try and reclaim withholding tax you'll have to contact each country's tax office separately, although the HMRC Residency centre in Nottingham (0151 210 2222) can sometimes supply the necessary forms. If you do apply you may face a long wait...

Holding shares via a nominee account should not preclude a tax reclaim provided you can supply a nominee statement to confirm you own the shares along with a tax voucher for the dividend received (your SIPP provider should provide this, if nothing else).

If the amounts are significant you might consider transferring to another SIPP provider who does reclaim withholding tax, although you'll need to weigh up whether it's cost effective to do so and I think most only reclaim withholding tax from a handful of countries (US being most common via a W-8BEN form).

The alternative is to buy foreign shares that pay little/no dividends (although this reduces investment choice) or use investment funds where the manager sorts the tax reclaim process (they should as a matter of course).

Read this Q and A at http://www.candidmoney.com/questions/question525.aspx

How would weaker EU countries going bust affect markets?

Question
I cant believe Germany are going to carry on bailing out the weaker EU Countiries and that the European Union will break up - if this does happen what do you think will happen to the stock market and financial markets ?Answer
In the short term stock markets would probably fall quite heavily if the EU were to break up, due to all the uncertainty it would cause - stock markets don't like uncertainty. Gold would probably rise, as it's popular in times of uncertainty, while demand for bonds issued by rock solid governments would probably rise (as investors flock to safety).

However, after the initial fallout, stock market fortunes moving forwards would probably be quite mixed.

Companies with a high exposure to the weaker countries might generally suffer, as those consumers and governments would likely have less to spend due to the severe austerity measures that would be required to try and shore up their economies. Banks with high lending exposure in those countries would probably suffer too due to rising bad debts.

However, companies with little/no exposure to the weaker countries are unlikely to be affected that much, if at all. How the potential break up of the European Union would affect cross-European and global trade is less clear - EU trade agreements would theoretically be torn up, although they'd need to be replaced by something. Germany is a big exporter and would probably put its own agreements in place pretty quickly.

The euro would also die, with eurozone countries reverting back to their own currencies. This would help stricken countries as their currencies would weaken to the point that foreign investors are prepared to lend to the governments at affordable rates (i.e. they can buy government bonds at worthwhile prices thanks to favourable exchange rates) and make exports cheaper.

I can't see the eurozone and European Union disintegrating but, like you, I doubt Germany and France will continue bankrolling the weaker economies (the main contenders being Greece, Ireland, Portugal and Spain) forever. I think it's more likely that countries struggling to borrow will be kicked out of the euro, which should effectively allow them to borrow again via the markets (by making their debt cheap via devalued currency - see above). Whether or not they remain in the European Union I'm not sure, but I think that decision will have less impact on markets by the time its eventually made (assuming it needs to be).

In summary, I think we can probably expect a rather bumpy ride over the next year or two. As well as all the potential problems in Europe, spending cuts and tax rises are still taking hold back home and energy/food price inflation remains a problem pretty much the world over. On the bright side, the credit crunch has forced many companies to become leaner and more efficient, so although the climate is tough there are still plenty of profits being made.

Read this Q and A at http://www.candidmoney.com/questions/question524.aspx

Use a DRO when in negative equity?

Question
Regarding DRO's, my mother-in-law has a mortgage and may be in negative equity. She has unsecured debts totalling £23,000 and is currently paying a token payment back each month to each of them. If her debts were to fall below £15,000 is this debt then wiped off after 12 months?

I knew nothing of the existence of DRO's until I read your article!Answer
One of the conditions to qualify for a DRO is having assets of £300 or less. While the £300 generally excludes household furniture, it would include your mother-in-law's home - even if she has negative equity.

The DRO qualification test looks at 'gross' assets, i.e. the value of items you own ignoring any debts secured on them. So even though her mortgage might be greater than the value of her home, it's the actual house value rather than value net of the mortgage that will be used - obviously more than £300.

if she can afford to repay at least £200 per month then an individual voluntary agreement might be an option. The debt is usually reduced by 40-60% and repaid over 5 years, but this must be carried out via a private company who'll charge fees of around £7,500 in total - hardly a cheap option. Plus missing payments could lead to bankruptcy.

Bankruptcy is the last resort, as this would very likely mean your mother-in-law losing her home. It can also be quite expensive and she'd probably struggle to borrow any money for 6 years afterwards.

So I'm afraid there is no simple solution that I'm aware of. I'd encourage her to speak to her local Citizens Advice Bureau, if she hasn't already. The key thing short term is to stop lenders adding more interest to the money owed, else she'll probably never escape the debts. At best she might be able to negotiate a freeze in interest and reduction in the debts if she can commit to regular repayments. After all, lenders would usually rather get something back than nothing at all.

I hope she manages to sort things out.

Read this Q and A at http://www.candidmoney.com/questions/question523.aspx

Choosing a discretionary investment manager?

Question
I am looking at using a dicretionary management service. namely Best Invest. They recently won the FT / Investor Chronicle Best Wealth Manager Award.
However, I want to know what the overall charge is for me to use their service. As I understand it from some of your most informative articles, the total cost is likely to be:

Best Invest Management Fees 1.0% plus VAT = 1.20%

External fund Manager Fees, say 1.5%

less. rebate, they state (0.5%)

Total Potential charge is 2.2% per annum

plus there are likely to be transaction charges to - but I dont know the average percentage

Are these figures and my understanding correct?Answer
Without wishing to belittle Bestinvest's discretionary service (which from my experience when working there a few years ago was pretty good), I've never paid much attention to awards. Publications run awards events primarily to make money - via sponsorship, charging companies to attend a ceremony and then charging winners to use the logo on websites and literature. Sadly the due diligence process for selecting winners tends to be rather variable - some are good while others almost non-existent - and it's nigh on impossible for us (the public) to know how rigorous any particular award judging has been.

Anyway, back to charges, your understanding looks correct. Technically the external fund charges are more likely to be around 1.6% - 1.7% (using the total expense ratio fund charge figure which includes a few extra costs), but then some funds and investment trusts held might have lower annual charges, so I think your 2.2% figure is probably quite realistic.

I don't think there are dealing charges for funds, but I'd expect dealing fees if the investment managers buy investment trusts (as they're stock market traded investments). Bestinvest doesn't disclose these on its website, which is a bit frustrating. Given you can trade online for less than £10 per deal these days I'd be concerned if the amount was much more than this.

When using a discretionary management service the sums involved tend to be large, so I'd always suggest 'interviewing' at three different companies before making a decision.

As well as clarifying charges, ask to see some sample portfolios along with past performance. And check exactly what sort of service is included in the cost. Will the manager simply run your portfolio, or will they also provide some tax planning and financial advice too where necessary?

I'd also check how bespoke the service will be. Some 'discretionary' managers simply stick your money into an in-house fund of funds, which is hardly bespoke or very flexible (although very profitable for the manager). It's natural that discretionary investment managers will hold their favoured investments across many of their client's portfolios, but it's important they can cater for any specific needs or preferences you might have.

Finally, although discretionary investment management is. by nature, quite hands-off from your point of view, it can be very helpful to be able to view your portfolio online along with comparative performance to relevant benchmarks. This means you can check how your money's invested whenever you want and ascertain how good (or bad) a job the investment manager is doing.

Read this Q and A at http://www.candidmoney.com/questions/question522.aspx

Artemis or Blackrock UK Special Situations?

Question
I've a small holding in JPM UK Dynamic. It's done OK over the years but seems to have gone through a number of managers and I now feel I could improve on it's performance.

Either Artemis or Blackrock UK Special Situations appear to be superior alternatives for a switch. Both seem well regarded by HL, BestInvest, Fidelity, Chelsea etc etc and have similar ratings by Morning Star and OBSR. TrustNet gives the Blackrock manager "alpha" status whilst the Lipper rating slightly favours Atremis. Atremis also has a better TER at 1.56% (Blackrock 1.67%).

Could you suggest any further research I could do to assist in my selection? as both funds seem so evenly matched at present.Answer
The JPM UK Dynamic fund supposedly contains JP Morgan's UK stock market 'best ideas' - performance over the last 5 years suggests their ideas have unfortunately not been very good. As always, that's not to say it won't do well in future, but I think your intention to switch elsewhere is sensible.

As for researching alternatives, you've made a good start by polling the various discount broker 'buy lists' and data from research agencies.

I'd suggest taking a look at the management style of the funds concerned, along with holdings, to better understand the potential risks involved and how they might cope with the challenging economic times that likely lay ahead.

Artemis UK Special Situations, managed by Derek Stuart, has performed well, albeit a bit erratically in recent years. Blackrock UK Special Situations, run by Richard Plackett, has outperformed (the FTSE All Share Index) more consistently, although volatility along the way has been a little higher versus Artemis.

Both funds invest in a mix of company sizes, with around 40% typically invested in larger companies and the balance split between medium and small.

Where they really differ is investment style. Stuart favours companies that offer value for money, for example those tipped for recovery after a difficult period, whereas Plackett prefers 'growth' investing - i.e. companies that have been doing well and look set to continue strong growth.

Despite this, they both share a bias towards the industrials and energy sectors. However, Plackett has a much higher weighting towards financials and hard commodities while Stuart has a greater preference for healthcare and food companies.

In theory value investing should fare better during a downturn while growth does better during the good times, but things are never that simple - as confirmed by a quick look at past performance for both funds.

Nevertheless, I'd probably favour the Artemis fund if you think global economies will struggle over the next few years, otherwise Blackrock looks more enticing.

But as these things are difficult to predict, I'd be inclined to split your money between the two!

Read this Q and A at http://www.candidmoney.com/questions/question521.aspx

Is pension income drawdown worthwhile?

Question
I do not have a SIPP at the moment but I am interested in what they offer. A lot of the press coverage has related to the freedoms afforded by flexible drawdown. However the majority of people will be restricted to capped drawdown I will almost certainly be one of these if I eventually go ahead and succumb to a SIPP.

I am unclear about how much flexibilty capped drawdoen will offer. People often suffer an income shortfall between ages 60-65 and it will be nice to take more income during this time. How does it work from year to year and how easily can changes (subject to the cap) be made?
Answer
The recently amended rules on how you can take an income from your pension have effectively scrapped the requirement to buy an annuity (i.e. swap your pension fund for an income for life) by age 75. The previous rules did technically allow this anyway, but the new rules are a bit simpler.

If you'd prefer not to buy an annuity - perhaps you think rates are currently unappealing or that you won't live long enough to get value for money - then the alternative is to leave your pension fund invested and draw a regular income instead - commonly called 'income drawdown'.

You can start drawing an income from age 55, with the option to take up to 25% of the fund as a tax-free cash lump sum at that time (generally a good idea). The income drawn can be between £0 and the amount you'd get from a single life level annuity, as calculated by the Government Actuary Department (GAD) - this is the capped drawdown you refer to. And if you want any remaining fund to buy an annuity at a later date you can.

If you receive at least £20,000 annual income for life (via state/other pensions) then you can take as much income as you want, i.e. 'uncapped' drawdown.

The only difference on reaching age 75 is that the equivalent annuity calculation (which determines the maximum income you can draw) must be carried every year - before then it's every 3 years.

Income drawdown is flexible, you can alter income payments (within the limits), although pension providers might charge an admin fee for doing so. But unless you have sufficient income to make uncapped withdrawals, you'll be limited to the equivalent annuity so not very helpful if you want to withdraw a lot of income for a few years (e.g. between 60-65).

Whether or not you use a SIPP in conjunction with drawdown is less relevant. SIPPs are popular for this purpose because income drawdown only tends to be worthwhile on larger pension funds (drawdown usually incurs some extra fixed charges and requires more effort/advice). And if you have a larger pension fund you'll probably be attracted to the investment choice offered by SIPPs. But income drawdown is available via more humble pensions too.

Another motivation for leaving a pension invested might be to pass it onto your spouse or offspring (assuming you're wealthy enough not too need it yourself). However, unless it's used to provide a taxable income for dependents, the fund will be taxed at 55% when paid out.

Read this Q and A at http://www.candidmoney.com/questions/question519.aspx

First time buyer mortgage with large deposit?

Question
Where can I find information on a range of mortgages that cover the situation where a large cash deposit input comes from parents?

What are the options for this type of mortgage, i.e. shared ownership? loan to young couple etc.Answer
If you and your partner have sufficient income to borrow the remaining amount required (lenders usually allow up to three times your combined annual salaries) then it's simply a case of shopping around for the best mortgage deal you can find.

Because the deposit gifted by your parents means the amount you need to borrow is likely fairly small compared to the value of the property (called the 'loan to value' (LTV) ratio) then you should have pretty much the whole mortgage market open to you - some of the best deals are only available to those wanting to borrow smaller amounts relative to the purchase price (i.e. lower LTVs).

Good sources for finding the current 'best buys' available are comparison sites like Moneyfacts and Moneynet.

Your main decision will be whether to opt for a variable or fixed rate. There's no right or wrong, the decision really depends on the extent you could afford higher monthly payments if interest rates rise. However, as fixed rates are currently higher than good variable deals you'll pay a premium to effectively insure against rate rises over the next few years which, in the current climate, don't look that likely. And, if you want to repay the mortgage during the fixed period (e.g. you decide to switch to a variable rate) there's usually a penalty for doing so.

If you go the variable route consider discounted rate deals which usually reduce the interest rate for the first 2-3 years. Provided you can repay the mortgage without penalty when the offer ends (i.e. re-mortgage to find a better deal elsewhere) then there's little downside. Or, take a look at 'tracker' mortgages, which usually fix your interest rate a set amount above the Bank of England Base Rate, ensuring you should get a fairly competitive deal over the life of the mortgage (potentially avoiding the hassle of re-mortgaging in future).

To give some examples, the following deals are as at the time of writing:

Fixed:Yorkshire BS (75% LTV) 3.99% fixed for 5 years.

Discounted Variable: Leek United BS (75% LTV) 2.49% discounted for1st 2 years (no penalty to repay thereafter)

Tracker: HSBC (60% LTV) 2.59% (base rate + 2.09% for life of mortgage).

There may be extra charges in addition (e.g. application fees etc) but the above should give you a general feel for how rates currently stack up.

You might see 'first time buyer' mortgages advertised, these are probably less relevant for you given your high deposit - the rates tend to high as they offer more generous LTVs than usual.

Shared ownership mortgages are relevant if you're unable to borrow sufficient money to buy a property outright. Some housing associations offer homes whereby you buy a share in the property (usually up to 75%) and pay a low rent on the balance, which is owned by the housing association. There's usually the option to buy the remaining share in future.
You may find it helpful to get quotes from a couple of independent mortgage brokers. You should be under no obligation to use them and hey can provide advice specific to your situation.

Finally, stating the obvious, be really careful not to over commit yourselves by borrowing more than you can realistically afford. No point buying a lovely home if it becomes a millstone or gets repossessed.

Good luck house hunting!

Read this Q and A at http://www.candidmoney.com/questions/question516.aspx

Are shares a good idea for ordinary investors?

Question
Are individual equities (including Investment trusts and Exchange Traded Products ) suitable for ordinary investors in general ? I ask this in relation to the risks and costs involved.Answer
Yes, provided they understand and are comfortable with the nature of the investments and inherent added risk versus a comparable unit trust.

In general terms, the additional risks due to the structure of investment trusts and ETFs are as follows:

Investment trusts
- investment trust shares often trade at a different price to the market value of the underlying investments (called 'net asset value' - the equivalent of unit trust unit price). For example, if an investment trust is trading below its net asset value (most do) it's said to be trading at a discount. If the discount widens then you could lose money even if the underlying investments haven't fallen in value (and, of course, vice-versa).

- investment trusts can borrow money to invest, called 'gearing', the average currently being about 9%. This means if you invest £100 the investment trust might borrow another £9 to give you £109 of market exposure. Good if markets rise, but it'll increase losses if markets fall.

ETFs
- if the ETF is 'synthetic', i.e. rather than buying shares the fund arranges for an investment bank to pay the promised return, then you might lose money if the investment bank(s) concerned doesn't pay up as promised. This is called 'counterparty risk'.

- if the ETF lends stocks to someone else (a common practice for many funds, not just ETFs) and the other party doesn't give them back, you might lose money - another form of counterparty risk.

See my article here for a more in depth explanation of these risks.

Shares are theoretically more risky because your investment depends on the fortunes of just one company, whereas a fund might hold 50 or more companies, helping to spread risk. But investing via shares is also cheap, as you don't need to pay a fund manager. I think this route is fine provided you do some research, appreciate the risks and are confident picking more winners than losers, as in a worst case scenario your investment could be wiped out if the company goes bust.

The other thing to consider is that neither shares, investment trusts nor ETFs are covered by the Financial Services Compensation Scheme (FSCS).

On balance I think both investment trusts and ETFs can both be well worthwhile, depending of course on the exact fund you select. Because neither product pays either sales commissions nor platform fees then charges tend to low, especially so for ETFs which are usually tracker funds (so there's no expensive fund manager to pay). I don't think buying shares directly is for everyone, but it's a route that some investors have used with great success.

Read this Q and A at http://www.candidmoney.com/questions/question518.aspx

Is Just Retirement safe?

Question
What do you think of "Just Retirement" as an annuity provider? I am nervous about using one which is not a big insurer. Are they covered by the FSCS?Answer
Just Retirement certainly can't compete with the large insurers when it comes to size, but they seem to have carved a niche for themselves in the 'enhanced' annuities marketplace - i.e. where your health or lifestyle might shorten your life expectancy. They also seem to do brisk trade in equity release mortgages and are no minnow, making an operating profit of £121 million last year.

If Just Retirement can offer you a competitive annuity rate then I'd be fairly relaxed about using them. It's not out of the question that they'd go bust, but I think it's unlikely. My biggest reservation is that the business is funded by venture capitalists, who might be reticent to pump money into the business to try and save it if things did go wrong.

In any case, Just Retirement annuities are covered by the Financial Services Compensation Scheme (FSCS), so you should get some protection if they did go bust. In such an instance the FSCS would probably look to transfer the annuity to another provider on the same terms, in which case you should notice little difference except for a possible delay in receiving income will the process take place.

Otherwise you’d claim for the equivalent lump-sum value of your annuity based on the cost of a new policy to provide the same level of income and benefits (such as joint life cover and indexation). You would then expect to receive 90% of this value with which to purchase a new pension annuity.

Of course, FSCS rules and levels of cover could change in future, but I think it’s unlikely cover for annuities would fall.

Read this Q and A at http://www.candidmoney.com/questions/question515.aspx

Should we fight high fund charges?

When most of us want to earn more money we have to work harder or more productively. And in these austere times even that might not work. But for fund managers it’s a lot easier, they just hike their fees - usually with little justification..

I first covered this topic on the site a year ago, but a couple of announcements this week have promoted a re-visit.

There are plenty of past examples where fund managers have raised fees for no other reason than it makes them more money.

The most obvious that springs to mind is Invesco Perpetual raising the annual charge on several funds, including Neil Woodford’s High Income fund, from 1.25% to 1.50% in June 2004 - boosting revenue by over £13 million a year since then. Their argument for doing so at the time? I seem to remember it was something like "well, most others charge 1.5%, so we're 'harmonising' our charges with the market." I'd better not print what I thought of this at the time, but let's just say 4 letters would suffice...

Moving swiftly on, Henderson and Standard Life Investments have both announced fee increases this week that prompt me to use those same 4 letters. Standard Life Investments, who deserve much credit for turning a lacklustre insurance company arm into a decent investment house, will be raising the annual management charge on 7 of its funds. The highest profile of these is the £1.2 billion UK Smaller Companies fund run by Harry Nimmo, which will see the annual charge rise from 1.5% to 1.6%. In total I reckon these increases will make Standard Life Investments an extra £2.3 million a year based on current fund sizes.

Their reason for doing so? The official quote is 'At Standard Life we conduct regular reviews of our products to ensure our fund charges remain competitive with the market...'. So hiking charges makes them more competitive? Standard Life is obviously on another planet to the rest of us!

Not to be outdone, fund giant Henderson, which recently bought Gartmore, has said fund administration charges (i.e. those charges on top of the annual management charge which make up the total expense ratio (TER)) on Gartmore funds will be brought in line with Henderson funds. The upshot is that the majority of Gartmore funds will see their TERs rise, by as much as 0.1% or more. I've yet to see the exact changes, by I wouldn't be surprised if they end up costing investors an extra £4m or more a year.

Quite how running more funds increases costs is beyond me, hasn't Henderson heard of economies of scale?

And then there's performance fees

If you buy an absolute return fund, chances are the manager will charge you the standard 1.5% a year plus a performance fee, in some cases 20% of all positive returns. So if the manager does a bad job they take home the usual fee and if they do an ok or good job it'll be a lot more.

Performance fees are fine where they ensure the manager shares risk with investors, i.e. their income is higher than usual if they do well and less than usual if they perform poorly. But fund managers don't seem to like doing anything that risks them earning less money. A few years ago (when at Bestinvest) I did try persuading a few fund groups to introduce fair performance fees along these lines, I'd have stood a greater chance of raising the dead.

It's obvious the concept of fairness is lost on most of the fund management industry and that they only care about one group of people - themselves.

What should we, as customers, do?

My gut answer is boycott greedy managers who don't treat customers fairly. But in practice, it's not that simple.

I still hold Invesco Perpetual High Income, despite my disgust at the fee increase mentioned above. Why? because I believe Neil Woodford will make me more money long term than a tracker fund. I also hold Standard Life Investments UK Smaller Companies. I'm sorely tempted to sell in protest, but Harry Nimmo is a great manager who's probably worth 1.6% a year if he continues outperforming his peers.

The trouble is, unless we stand up to fund managers by moving money elsewhere when they hike charges or introduce greedy performance fees, they'll continue to walk all over us.

So what is the answer? Should consumers try to band together and regain some power over fund groups? Or should we all focus on bottom line returns and be relaxed about charges? Please share your thoughts below...

Read this article at http://www.candidmoney.com/articles/article236.aspx

Should I invest in emerging markets?

Question
I am currently new to investing and was wanting to know your thoughts on the Jupiter China Fund and the Jupiter emerging market funds?

I am looking at starting small by investing £100 per month into a profitable fund. Are there any funds that you could recommend to me?

Many thanks in advance for your advice.Answer
The answer really depends on how much risk you're comfortable taking. This will determine the investment areas that are potentially appropriate, then it's a case of choosing funds in those areas that are (hopefully) worthwhile.

I've little doubt that China and other emerging markets are a good bet over the next 10-20+ years. Their economies will likely continue to grow at a faster rate than ours and there should be good profits to be made along the way, especially as their local populations start to earn then spend more money. From this point of view you could argue investing in these areas is fairly low risk long term.

However, the shorter term risks of investing in these areas can be high. When there are global setbacks, the investments that have tended to rise fastest often fall back the hardest - as has generally happened with emerging markets over the last year. And there's plenty of factors that could push emerging economies off track as they grow - high inflation, political problems, corruption, banking crisis and natural disasters to name but a few. You might find my article on emerging markets helpful.

While none of these potential problems are ever likely to be terminal, they can contribute to emerging markets investing being a volatile journey, so you'll need to be comfortable facing potential losses at times along the road to probable long term profit.

Of course, you might be lucky and make lots of money within just a year or two, but I'd strongly suggest only investing in emerging markets if you're comfortable with the possibility of high short term volatility and losses. Investing monthly does potentially help, as short term market falls will hurt less than had you invested a large lump sum at the outset.

If the above doesn't put you off then by all means consider a China and/or emerging markets fund. If you think this approach will give you sleepless nights then perhaps consider spreading your money more widely, perhaps including some developed markets and maybe other investment types such as fixed interest and property.

As for the Jupiter funds, I'd be inclined to look elsewhere. Jupiter China has disappointed of late (see my answer to this earlier question) and Jupiter Global Emerging Markets has only been running since November 2010, so little track record as yet. The manager, Kathryn Langridge, has run emerging markets funds for other fund providers in the past, but with less than convincing results.

That's not to say neither will do well in future, but fund investing is all about making educated guesses on how things will pan out. And on balance I think there's a reasonable chance you'll end up better off using funds like Aberdeen Emerging Markets or First State Global Emerging Markets Leaders for emerging markets exposure - both have proven management teams and tend to be relatively cautious (which I think is no bad thing). As for China funds, First State Greater China Growth is worth a look, as is Neptune China (although it's run more aggressively hence volatility is likely to be greater).

The alternative to the above actively managed funds is to buy funds that aim to track an index. These should be cheaper and quite often fare well versus a number of active funds. There's not a great choice when it comes to emerging markets - you'll need to consider exchange traded funds, which might become expensive for a monthly saving due to dealing costs, although some stock brokers (iii and Alliance Trust Savings) do offer monthly dealing for £1.50. But if you decide to invest in developed markets (e.g. UK or US) then they're well worth considering.

Holding funds from different fund managers is easy if you use a fund platform/supermarket and you can cut costs by doing this via a discount brokers. Take a look at the Candid Guides on these topics for more info.

Good luck whatever you decide.

Read this Q and A at http://www.candidmoney.com/questions/question514.aspx

Are nominee accounts safe?

Question
I've been a regular investor using Halifax Sharebuilder ( because it's £1.50 per trade ) and so hold shares in their Halifax Share Dealing Nominee account. From your excellent website I recently found out that I am merely the beneficial owner of the shares, and 'Halifax' is the legal owner of them.

That prompted me to find out what happens if the organisations, that I have nominee accounts with, suffer financial problems and have received satisfactory ( or excellent! ) replies from them all - except Halifax who keep telling me that the compensation limit is £50k.

Can you get a better answer out of them - or is it actually unsafe to hold more than £50k with them? ( it would seem odd to advertise cheap dealing rates if there was any sort of chance that you could lose your holding totally, so I'm expecting a sensible answer to come forth eventually, but this 'ordinary consumer' has failed to get it so far )

PS. Their standard reply begins with "As a subsidiary of Lloyds Banking Group we are a part of the UK's biggest savings and mortgage provider which has a strong capital base and as such you can be confident that you are dealing with a sound business." which is enough to scare anyone!Answer
Stock broker nominee accounts all operate in a similar way. The shares will be registered in their name (well, technically the nominee account's name), but held for your benefit via the nominee account.

This means your name won't appear on the shareholder register and you won't usually be eligible to either vote or receive any shareholder 'perks' (less common these days anyway). But you should still expect your money to be safe (ignoring the risks of the underlying shares themselves).

Nominee accounts should always be ring-fenced from a stockbroker's own business. This means that if the broker goes bust the nominee account is unaffected. It might take a while to get the shares re-registered into your name (or another stockbroker's nominee account), but the important point is that your shares are safe.

However, there's a risk the stockbroker might dip their hands (illegally) into the nominee account (think Robert Maxwell and pensions...). While this is highly unlikely, especially for a large well established broker, I guess we can never say never.

If this does happen and the stockbroker goes bust (meaning they can't afford to reimburse the nominee account) then the Financial Services Compensation Scheme (FSCS) should kick in, but this only provides compensation for up to £50,000 of investments held per firm.

Bottom line, if you hold shares via a nominee account and don't trust your stockbroker not to illegally take your money, then limit your holding to £50,000.

A more secure way of holding shares is to use a Crest 'Personal Account', which allows electronic share trading but ensures you are the registered owner of the shares. The downside is that few stockbrokers currently offer this facility and it seems to be more expensive than conventional nominee accounts.

Halifax certainly haven't been very helpful in their answer to you. But I've checked and they operate a standard nominee account (Halifax Nominees Limited) as outlined above.

Read this Q and A at http://www.candidmoney.com/questions/question512.aspx