Question
I was interested to read your comparator of Discount Brokers as referred to in the Sunday Times recently.
I have an allied question. Let's suppose I have a portfolio worth £800k of which £300k comprise ISAs. Most are blue chips and most years dealing is restricted to approx 5-6 sales and 5-6 purchases pa.
I have til now employed a traditional broker who charges per transaction plus a fee for ISAs' management (approx 1% ISAs' worth), the annual cost coming in at roughly £4000 pa. Their discretionary service includes taking heed of my annual CGT and ISA allowances and they provide a tax pack for my accountant. The shares are held in a nominee account. From my point of view, it's effortless.
My broker has recently indicated that their fee structure is shortly to switch such as to charge an annual management fee of 1% of the portfolio's worth altho' no longer will there be a seperate ISA fee. As such, their annual charge will at least double and yet the service will be otherwise unaltered.
Perhaps not surprisingly, I am discontent and wondered whether there were brokers who'd provide the same service as I currently enjoy without charging twice the traditional fee? I'm assuming the Discount Brokers would not so oblige?Answer
1% a year is fairly typical for discretionary investment managers, regardless of whether investments are held within an ISA or not. For this you would expect them to take full charge of your investments, making all the investment decisions, optimise use of your tax allowances and provide the necessary paperwork for your accountant. Some discretionary managers only use investment funds, some only shares and others a mix of the two.
In this respect it sounds as though you've been charged less than the going rate to date, albeit still a significant sum of money. A truly good discretionary manager should be able to more than justify their fees by delivering excellent performance but, let's face it, most probably don't.
But therein lays perhaps the biggest issue with discretionary managers - analysing portfolios and comparing performance is very difficult. Although it's not uncommon for discretionary managers use similar portfolios for their clients where appropriate, it's rare that they freely publish typical portfolios with performance figures. So trying to compare the investment skills of different discretionary managers can be complex, if not impossible.
As for discount brokers, they won't provide advice (they just transact fund purchases with discounts), so you'll need to make your own investment decisions. Provided they use an investment platform (almost all do these days) then a tax voucher covering income will be standard, keeping your accountant happy. However, capital gains tax reporting isn't normally provided, so you or your accountant will need to do this, although it should be very straightforward as all the necessary details will be provided via a transaction history.
One thong to bear in mind if you transfer elsewhere is that the non ISA investments will need to transferred 'as is' to avoid triggering gains and potentially landing you with a big capital gains tax bill. Such 'in-specie' transfers are normally straightforward, although the existing broker will likely charge for doing so.
I think the bottom line is whether you want someone to run the portfolio for you. If so, a discretionary manager probably remains the most sensible route, albeit you need to ensure you're getting value for money, which means examining the performance of your current manager. A newer entrant to market, Nutmeg, runs discretionary portfolios of tracker funds and would charge around 0.6% a year on a portfolio of your size. While too new to judge performance wise and arguably not really a bargain given they only invest in trackers, it's still an interesting development in an otherwise staid marketplace.
Using a discount broker could save you thousands of pounds a year, but you'd have to take a more active role, selecting and monitoring investments yourself. If you have the time and inclination, by all means consider it.
I was interested to read your comparator of Discount Brokers as referred to in the Sunday Times recently.
I have an allied question. Let's suppose I have a portfolio worth £800k of which £300k comprise ISAs. Most are blue chips and most years dealing is restricted to approx 5-6 sales and 5-6 purchases pa.
I have til now employed a traditional broker who charges per transaction plus a fee for ISAs' management (approx 1% ISAs' worth), the annual cost coming in at roughly £4000 pa. Their discretionary service includes taking heed of my annual CGT and ISA allowances and they provide a tax pack for my accountant. The shares are held in a nominee account. From my point of view, it's effortless.
My broker has recently indicated that their fee structure is shortly to switch such as to charge an annual management fee of 1% of the portfolio's worth altho' no longer will there be a seperate ISA fee. As such, their annual charge will at least double and yet the service will be otherwise unaltered.
Perhaps not surprisingly, I am discontent and wondered whether there were brokers who'd provide the same service as I currently enjoy without charging twice the traditional fee? I'm assuming the Discount Brokers would not so oblige?Answer
1% a year is fairly typical for discretionary investment managers, regardless of whether investments are held within an ISA or not. For this you would expect them to take full charge of your investments, making all the investment decisions, optimise use of your tax allowances and provide the necessary paperwork for your accountant. Some discretionary managers only use investment funds, some only shares and others a mix of the two.
In this respect it sounds as though you've been charged less than the going rate to date, albeit still a significant sum of money. A truly good discretionary manager should be able to more than justify their fees by delivering excellent performance but, let's face it, most probably don't.
But therein lays perhaps the biggest issue with discretionary managers - analysing portfolios and comparing performance is very difficult. Although it's not uncommon for discretionary managers use similar portfolios for their clients where appropriate, it's rare that they freely publish typical portfolios with performance figures. So trying to compare the investment skills of different discretionary managers can be complex, if not impossible.
As for discount brokers, they won't provide advice (they just transact fund purchases with discounts), so you'll need to make your own investment decisions. Provided they use an investment platform (almost all do these days) then a tax voucher covering income will be standard, keeping your accountant happy. However, capital gains tax reporting isn't normally provided, so you or your accountant will need to do this, although it should be very straightforward as all the necessary details will be provided via a transaction history.
One thong to bear in mind if you transfer elsewhere is that the non ISA investments will need to transferred 'as is' to avoid triggering gains and potentially landing you with a big capital gains tax bill. Such 'in-specie' transfers are normally straightforward, although the existing broker will likely charge for doing so.
I think the bottom line is whether you want someone to run the portfolio for you. If so, a discretionary manager probably remains the most sensible route, albeit you need to ensure you're getting value for money, which means examining the performance of your current manager. A newer entrant to market, Nutmeg, runs discretionary portfolios of tracker funds and would charge around 0.6% a year on a portfolio of your size. While too new to judge performance wise and arguably not really a bargain given they only invest in trackers, it's still an interesting development in an otherwise staid marketplace.
Using a discount broker could save you thousands of pounds a year, but you'd have to take a more active role, selecting and monitoring investments yourself. If you have the time and inclination, by all means consider it.
Read this Q and A at http://www.candidmoney.com/askjustin/806/is-my-broker-charging-too-much
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