Platforms and discount brokers will be forced to come clean

The Financial Conduct Authority (FCA), part of what used to be the FSA, published new rules today confirming that fund platforms and discount brokers white-labelling platforms will finally be forced to come clean over how much customers pay for their services..

This is great news for customers, as many may currently be unaware how much a platform or discount broker is effectively charging them via undisclosed commissions and/or platform fees.

So what's happening?

The current system of fund managers paying fees and/or commissions to platforms out of fund charges will be banned for new business from 6 April 2014, to be replaced by explicit fees charged directly to customers and lower cost 'clean' versions of funds (without commissions and platform fees built in).

The deadline for funds already held prior to next year's ban will be extended by two years until 6 April 2016, although subsequent fund switches or an increase in regular saving will instantly trigger the ban.

Why the change?

At present the majority of platforms rely on commissions and/or platform fees paid by fund managers to earn their crust. The problem is these payments are not always disclosed, leaving customers with no idea how much they're really paying a platform , via fund charges, for its services. It also casts suspicion (rightly or wrongly) over the integrity of 'favourite' fund lists promoted by some platforms and discount brokers.

The new rules should remove these issues. Customers will be able to see exactly how much they're paying and to whom, hence be in a much better position to judge whether they're getting value for money.

Who's affected?

A lot of people I imagine, as the rules will impact some of the largest and most popular fund platforms that sell direct to the public, including Hargreaves Lansdown, Bestinvest, Barclays Stockbrokers and Fidelity FundsNetwork. As well as discount brokers who white label platforms, for example Chelsea Financial Services, Willis Owen, Cavendish Online and rPlan.

However, those using platforms already operating along the lines of the new rules, namely Charles Stanley Direct, Alliance Trust Savings and TD Direct Investing should be largely unaffected, although the latter two still have some customers with older style funds that will need to converted to 'clean' versions.

What change can I expect and when?

Funds that currently bundle commission and platform fees into their annual charges will eventually cease, by April 2016 at the latest. If you currently hold such funds then at some point they'll need to be converted to clean versions. In simple terms, this means an annual charge of 1.5% might fall to around 0.75%. However, you'll then need to pay a fee directly to the platform and, if you're using one, discount broker - the combined total of which might be the same, higher or lower than you're currently paying.

Of course, moving to clean units could take place well before April 2016, depending on when platforms decide to make the move. And, in any case, you can force change yourself by transferring to a platform already offering clean units.

That's the end of fund commission then?

Yes. It's already banned where advice is given. And since HMRC is now taxing commission rebates paid to customers outside of ISAs and pensions I suspect we'll see most platforms and discount brokers go clean before the official deadlines.

Any tax implications when switching to clean units?

Possibly - if you sell existing units and repurchase clean units outside of an ISA or pension then any gains will be subject to capital gains tax as usual. However, provided the platform or fund manager carries out the conversion then no tax will apply and your purchase price will remain the same as the original. As things stand this only applies if conversion is carried out en masse, but new HMRC rules due in May will extend this to conversions carried out for individual investors.

Will a fund's clean version cost the same everywhere?

This is a big question and it's too soon to answer. But the issue is best explained using Hargreaves Lansdown (HL) as an example. Based on current documents the company currently receives an average 0.77% annual commission from fund managers, from which it rebates an average 0.17% a year to customers in the form of a 'loyalty bonus'. So, a simple margin of 0.6%. If HL wants to maintain this margin on moving to clean units then it would somehow have to charge its customers an average 0.6% a year. If clean units via HL cost the same as everywhere else then overall cost will look expensive after adding HL's fee, so the company has a big incentive to negotiate lower annual charges from fund managers than competitors - else customers might decide to move elsewhere.

However, fund managers, especially those running the most popular funds, might resist. If they give HL a better deal it will, for the first time, be there for all to see. Competitors will demand (and in time probably get) the same deal reducing manager margins forever. Hargreaves Lansdown has already fired a warning shot by saying commercial negotiations will affect the formulation of its Wealth 150 list in future (see this http://www.moneymarketing.co.uk/investments/hargreaves-wealth-150-may-shrink-in-rdr-pricing-world/1070151.article trade publication article), so it'll be an interesting power struggle to watch.

Anything else?

One surprise is the FCA confirming that platforms and discount brokers may continue to receive advertising fees from fund managers. Since this is a potential source of bias it's a strange decision. I would urge all platforms and discount brokers to make public statements on whether they accept any monies from fund managers other than commissions or platform fees on existing business. And if they don't disclose this customers should demand the information, as without it a question mark could still hang over the promotion of particular funds.

One thing's for sure, there'll be a lot to keep an eye on over the next year or so...

Read this article at http://www.candidmoney.com/articles/270/platforms-and-discount-brokers-will-be-forced-to-come-clean

IHT position if I give home to my children?

Question
I am 60, divorced and own my home with no mortgage. I have 2 children in their 20's. My house has a value of £325,000. If I was to change the title deeds in favour of my children and survive 7 years from the date of transfer would I be liable for IHT. Would I have to pay market rental to them during and after the 7 years until I die?Answer
Inheritance tax (IHT) applies to the total value of your estate at the time of death which exceeds the prevailing nil rate band - currently frozen at £325,000 until at least April 2018.

The key exception is when leaving assets to a spouse/civil partner, in which case the assets are exempt from the tax. Any unused nil rate band can also be passed to a spouse/civil partner. However, if the assets remain in a spouse/civil partner's estate this might simply defer an inevitable IHT bill until their death.

Generally the only way to get assets out of your estate is to give them away which, with a few exceptions (such as giving to charity and small annual allowances), means having to live for at least seven years after making the gift before it's deemed to be outside of your estate. Furthermore, you're not allowed to retain an interest in, or use of, the asset once given away unless you pay market value for its use.

Bringing all this back to your question. If you give away your home to your children and live for at least 7 years thereafter then it will be deemed to have fallen outside of your estate. However, if you continue to live in the property you'll need to pay your children market rent or HMRC may effectively void the gift for inheritance tax purposes.

If you die within 7 years then any IHT due on gifts (because they're still in your estate) may be reduced via taper relief. However, as any gifts made are assumed to use the nil rate band (in chronological order) before other assets on death this really doesn't help unless total gifts exceed the nil rate band.

Assuming the property is outside of your estate when you die and your remaining net assets (that comprise your estate) are lower than the nil rate band at that date then yes, there should be no IHT to pay.

Read this Q and A at http://www.candidmoney.com/askjustin/864/iht-position-if-i-give-home-to-my-children

Scottish Friendly Moneybuilder worthwhile?

Question
Scottish Friendly offers a Moneybuiler plan where saving £50 month (increased by 20% a year over first five years) for15 years gives a minimum guaranteed lump sum of £14,795. Is this good way to invest or are there better alternatives?Answer
In my view there are plenty of alternatives that will potentially be much better.

The Scottish Friendly Moneybuilder plan is effectively a type of endowment (technically it's called a 'qualifying policy'). As with most endowments there are two big potential drawbacks: high initial charges and the money being invested in a 'with-profits' fund.

Rather shockingly your first two years of contributions are taken in full as charges, so surrender within the first two years and you'll get back zilch. The underlying with-profits fund also seems to charge 1% a year. According to Scottish Friendly's illustration the net impact of these charges would be to reduce a 5% annual return to just 2.4% - that's pretty expensive.

The plan itself pays tax on income and gains (at around basic rate) but there's no further personal tax to pay if you hold until maturity.

Based on your £50 contribution (which rises by 20% a year over the first 5 years) at maturity after 15 years you would have contributed a total of £16,200. The guaranteed minimum you'll get back is £14,795, with any amount above this depending on investment performance of the with-profits fund.

While with-profits isn't a bad concept - spread your money across shares, bonds and property then hold back some profits each year to smooth returns (during bad years) over time - it tends to be far too opaque. Finding out exactly how your money is invested within the with-profits fund and how it's performing is difficult - at best you might be told once or twice a year (to prove my point the 'how we invest your money' document relating to the Moneybuilder plan doesn't specify exactly what the with-profits invests in nor the actual split between different assets such as shares and bonds). And much of your potential return might rest on a final bonus paid at maturity (in effect your share of held back profits), which is unknown until that time.

The plan also offers nominal life cover (as qualifying policies are obliged to do), so double check how much this is (the minimum allowed is three quarters of the total premiums paid over the term, so £11,700 in your case).

If you've already started the plan you'll have to weigh up whether it's worthwhile taking a hit short term (due to the first two year's contributions being taken as charges). If you haven't then I'd give it a miss.

Potentially better alternatives (although no life cover) include using your ISA allowance via a discount platform/broker to hold low cost stock market tracker funds and corporate bond funds (or multi asset funds that combine both plus others). There's no guaranteed minimum return, but costs should be significantly lower (certainly under 1% a year in total).

Read this Q and A at http://www.candidmoney.com/askjustin/862/scottish-friendly-moneybuilder-worthwhile

Must I sell shares to put them in my ISA?

Question
I have some of the same company shares bought and held in both an ISA and a non ISA dealing account.

I want aggregate the two holdings within my ISA account i.e. the same company shares all in the ISA.

Can I simply sell them in the non ISA account and use the money to buy them back in the ISA and are there any
constraints on doing so?

I am aware of the dealing costs and the chance that the share price may change. The accounts are with different brokers and both on line dealing accounts.Answer
Yes, in fact selling the shares and using the cash to repurchase within an ISA is the only way you can do this unless the shares come from an employee share scheme such as SAYE or
a Share Incentive Plan (SIP) - in which case the shares can be transferred into an ISA within 90 days of the option date./plan ceasing.

Just be aware that any gain you make from selling your shares will count towards your annual capital gains tax allowance, £10,900 for the 2013/14 tax year. If, over the tax year, your total gains exceed this amount the excess will be taxable.

Also bear in mind that only shares listed on a HMRC recognised stock exchange may be held in ISAs, currently this precludes companies listed on the Alternative Investment Market (AiM), although the Government has suggested AiM shares may be allowed in future. Although given you already hold the shares in an ISA this doesn't seem an issue.

Read this Q and A at http://www.candidmoney.com/askjustin/860/must-i-sell-shares-to-put-them-in-my-isa

Best buy cash ISAs?

Question
Next week my 2yr 3.70% Fixed rate Postal Santander ISA matures so I am looking to transfer to another ISA.

Where can I find your current list of Cash ISAs? Answer
Sorry if my answer is a couple of week's too late. I don't maintain a list of best buy cash ISAs as sadly I just don't have the time. However, there are plenty of online sources for 'best buy' rates, a few examples as follows:

Which?
Moneyfacts
Moneysavingexpert

Your main decision is whether to go for fixed or variable. Fixed rates have come down over the last couple of years as the current low Bank of England base rate looks here to stay for a few more years yet (they don't want to risk raising rates while the economy is struggling), so it's less of a major decision than in the past.

If you opt for variable chances are the rate will include a temporary bonus, this is fine provided you make a note of when it ends and shop around for a better deal at that time.

Read this Q and A at http://www.candidmoney.com/askjustin/853/best-buy-cash-isas

Minimum standard for financial advice and service?

Question
Can you advise if there are any minimum standards a chartered independent financial adviser is required to provide a client regarding their portfolio performance?

I know what to expect from an accountant, solicitor or other professionals but my IFA has never provided anything other than an annual valuation of my portfolio followed by a general discussion of fund and market performance, all of which I can follow on the internet.

I have since found out that independent clients of Fidelity receive prefect and loss performance information on each fund which I have not received as an advised client.

After pressing my adviser for performance reporting relative to my Portfolio and requesting we look at Passive index funds he decided he could not go along with this and suggested we go our separate ways.

So I now left 'Advisorless' but still not clear on what portfolio performance information I should be able to receive for the charges I am paying. I know what to expect from a bank, but financial institutions seem to make up their own rules.

So what are the standards for the IFA industry?Answer
In terms of investment performance reporting standards the answer is simple - there are none. It's up to an adviser whether they provide you with performance updates and, if so, how often and to what standard.

In the past, when it was more common for clients to hold funds with lots of individual fund providers, lazy advisers would simply forward annual (or twice yearly) valuations from the providers or arrange for them to be sent directly. More conscientious advisers would produce a single paper valuation containing all your investments while the more technically advanced might offer an online version (Bestinvest was perhaps the first to pioneer this).

Now that it's more common to hold funds from multiple fund providers within a single platform/supermarket/wrap (these words all broadly mean the same thing), such as Fidelity FundsNetwork, it's now simple to view your portfolio online (which you should be able to do independently of your adviser - ask Fidelity for login details if you don't have them).

In light of this, the real value an adviser can potentially add is overall financial and tax planning along with pro-active investment monitoring and advice. For example, if a decent fund manager quits your adviser should be aware and assess whether a change might be beneficial - or perhaps market movements mean your portfolio becomes unbalanced, again the adviser should review and recommend change if worthwhile. There are no set standards as such, but if an IFA can't cover basics like this I'd be very concerned.

You may be 'adviser less', but check whether your IFA continues to receive ongoing 'trail' commission from your investments. Although commission has been banned on advised sales since the end of 2012, it can usually continue to be paid on investments set up previously until events such as switches or transfers take place. If you decide not to use another adviser then your best bet will probably be to use a discount broker/platform to keep costs low - see my guide to ISA Discounts for an overview.

If you're looking for another adviser then independence is important, but I wouldn't get too hung up on whether they're Chartered or not. Unless you have complex needs it'll likely make little difference to the advice you receive - the more important factors being how the adviser selects and monitors investments, their fee levels and the amount/quality of ongoing advice and service you'll receive. Chartered status suggests the adviser takes their career seriously, which should be a good thing, but it's by no means a guarantee you'll receive decent advice or service.

Read this Q and A at http://www.candidmoney.com/askjustin/859/minimum-standard-for-financial-advice-and-service

When is Bestinvest custody charge taken?

Question
Bestinvest - Quarterly Custody Charge Dates

I've looked through several fees and charges documents that Bestinvest Select provide via their website and I'm struggling to find any clear indication of when the quarterly custody charges are actually levied.

I need to know because I want to sell and transfer out of their ISA and obviously don't want to snag a new quarterly charge if I can avoid it. I know you used to work for them Justin so thought I'd ask here if you have that information available.

Keep up the great work you do.Answer
Thank you, glad you find the site helpful.

I checked with Bestinvest (as agree their documents don't make this clear) and the Select Service custody charge is taken at calendar quarterly ends, i.e. the end of March, June, Sept and December.

Just bear mind that when transferring the process can take a few weeks. If transferring across as cash I guess the date that matters is when the investment(s) triggering the custody charge are sold, as there's no custody charge on cash. If transferring 'as is' (i.e. in-specie) then the date on which your investments are transferred out of Bestinvest's nominee account is the one that matters. Either way, I'd leave at least a month to be safe unless you're selling the investments yourself to transfer cash.

Read this Q and A at http://www.candidmoney.com/askjustin/855/when-is-bestinvest-custody-charge-taken

Vestra Wealth for my SIPP?

Question
I have some funds invested with Vestra Wealth as their charges appear low, 1% annual fee with commission rebated to client. They also seem to perform well.

As I have further funds to invest, namely my pension pot which is in a SIPP. should I consider another company or go with Vestra who seem to be doing a fair job?

Your thoughts will be appreciated.Answer
Vestra Wealth offers a range of services, both directly and via financial advisers, but it sounds as though you're referring to their investment management service (either discretionary or advisory) and dealing directly with the company.

Sadly although the Vestra website says its fee structure is clear and transparent, it doesn't actually specify what these are - which is a big bugbear of mine.

Based on what you've said you're being charged 1% a year for advice/investment management with no initial charge. In addition to Vestra's charge, you'll also have to pay for the underlying investments and a SIPP wrapper/platform. It's important to find out what these are before going ahead.

I'd guess the underlying annual fund charges (measured by 'total expense ratio' or 'ongoing charge') would be somewhere in the region of 0.7% - 0.9% as this is a fairly typical charge for actively managed funds ('institutional' or 'clean' versions without commission and platform fees built in). If the funds held are trackers then the cost would obviously be lower.

As for the SIPP platform, this could vary widely depending on who Vestra recommends you use, but around 0.25% a year (preferably lower) tends to be the norm.

So I'm guessing your total annual cost will be just over 2%, which is potentially a touch on the high side, but not extortionate depending on the exact service being offered.

The likelihood of good investment performance is also very important, but as Vestra doesn't publish performance figures (that I can find) afraid I can't comment on this.

In summary, if you're happy with Vestra's performance and service to date then I can't see a pressing reason not to use them for your SIPP - just check that any SIPP platform charges are reasonable and make sure there are no other hidden costs.

Read this Q and A at http://www.candidmoney.com/askjustin/854/vestra-wealth-for-my-sipp

Where to invest for the next 5 years?

Question
I already have a well diversifed portfolio and emergency cash accounts. I am going to be receiving a fairly high lump sum soon and would like to receive your view on where to invest this now, disregarding attitude to risk, but taking into account the high stock market index at the moment (around 6500).

Which funds or fund sectors would you invest in at the moment that would give a decent return over the next 5 years?Answer
I would be nervous about making any big bets over the next 5 years. My concern is that it's likely stock markets have more propped up by massive Central Bank intervention in recent years, i.e. governments indirectly pumping a small fortune in to markets, than a fundamental improvement in fortunes.

Of course, the intervention might pay off medium to longer term (by which I mean 5-10+ years) if it kick starts sustained economic growth, but if it doesn't we could, at best, be in for quite a stagnant few years ahead.

The other issue that makes short term predicting especially haphazard is that stock markets seem quite disconnected from economies shorter term. With all the generally negative economic news around you'd think markets would be riding low than high. The above mentioned intervention has likely played a big part, but some companies have been very profitable too - in many cases thanks to depressed domestic wage growth (because of struggling economies), outsourcing to cheap developing markets and growing exports to emerging middle classes in those developing markets. Well run global companies who are good at squeezing costs to the bone (well, sadly not at CEO level!) and selling in-demand exports are, in very general terms, reasonably well placed short term.

Over a 5 year time scale I'd be more inclined to follow your existing diversified approach than focus on any one particular sector.

Over a 10-20 year period I'd back emerging markets and commodities in general, as both stand to profit handsomely from a long term growth in global demand for goods and services (primarily driven by emerging markets themselves as their domestic demand grows). However, there'll probably be quite a lot of volatility along the way, hence my reticence for bets over a shorter period.

There are always seemingly tempting investment stories around for those willing to take a punt: infant emerging markets, undeveloped land, alternative energy and biotechnology appear popular at present, but in my view the potential risks and uncertainties are too high for most investors (including me).

Read this Q and A at http://www.candidmoney.com/askjustin/841/where-to-invest-for-the-next-5-years

CGT and SAYE, rights issues, splits, DRIP etc

Question
Having, over a full working life, built up a large [for me, if not for a millionaire!] holding in my former employer's shares, I am unclear how to deal with CGT now that I'm retired. Shares were acquired through:
[1] Profit-sharing
[2] SAYE contracts
[3] Partnership shares (can't quite remember how that worked)
[4] Rights issues
[5] Re-capitalisations and 'splits'
[6] dividend re-investment via 'DRIP' and other names (for a while, scrip issues in lieu of dividend).

I think that's it!

How do I establish the base prices for shares I sell? Any comments would be appreciated, there must be many people in similar situations.Answer
Blimey, you have built up a mixed bag of shares in your former employer, hope their share price has soared and you're sitting on a nice overall profit. And thank you for an interesting question, I hope the answer will help many people with shares acquired in one or more of these ways.

As for capital gains tax (CGT) and the base price of the shares acquired, let's take a look at each in turn.

1. Profit Sharing
The profit share scheme was available between 1978-2001 and designed to give employees shares as a benefit that wasn't subject to income tax. Under the scheme shares were acquired (called 'appropriated') for employees and held under trust for between 2-3 years. The base price for CGT purposes is the open market value of the shares at appropriation, i.e. when the shares were put into the trust.

2. Partnership Shares (Share Incentive Plan)
Share Incentive Plans effectively replaced the Profit Share scheme, allowing employees to buy shares in their employer from pre tax income (avoiding income tax and NI) - called partnership shares - as well as receive extra free shares. Provided you keep the shares in the Plan there's no CGT when you come to sell them. Take the shares out of the Plan and the base price for CGT is their market value on the date taken out of the plan. When you left the employer the shares would normally have been taken out of the plan at that time.

3. Save As You Earn (SAYE)
The cost of shares under SAYE for CGT is deemed to be the fixed option price you paid for them under the scheme. In the unlikely event you had to pay income tax on the 'gain' when exercising the share option (generally only happens if the share scheme wasn't HMRC approved) then the base price would be the option price plus the gain on which income tax was paid.

4. Rights Issues
Rights issue usually allow you to buy new shares at a discount to the market price. To calculate the gain for CGT you effectively work out an average price paid for the combined rights issue and the existing shares they relate to then multiply that by the shares sold to get an allowable cost. Rather than cover in detail here I'd suggest taking a look at the HMRC http://www.hmrc.gov.uk/helpsheets/hs285.pdf document here, especially the example on page

5. Re-captilations and splits
A split is when a company increases the shares in issue and correspondingly reduces the share price. For example, you have 100 shares at 100p each, the company gives you another 100 reducing the price to 50p each. The key is that the new shares are not deemed to be a new acquisition, instead you use the purchase price of the original shares and divide by the new increased number of shares to get a base cost per share - more details in the HMRC document mentioned above.

6. Dividend re-investment via DRIP
DRIP is a scheme offered by some companies whereby you use dividends to automatically buy more shares. Although you don't receive the cash the dividend is taxed as normal and the base cost of the shares is the price they're purchased at.

The downside with all the above is that there's potentially a lot of legwork required to collate/calculate the necessary base costs when calculating gains. Hopefully you have a mountain of paperwork containing the necessary info or, if you're lucky, your former employer may publish prices for rights issues, splits and DRIP.

Happy calculating!

Read this Q and A at http://www.candidmoney.com/askjustin/851/cgt-and-saye,-rights-issues,-splits,-drip-etc

Should I subscribe to Midas Extra?

Question
I have been buying shares instead of funds as I was fed up paying for someone to loose my money. I am thinking of paying the £10 a money for Midas Extra, do you think this would be a good investment.Answer
For those readers who don't know, Midas Extra is the share tipping service run by the Financial Mail on Sunday. It tends to focus on investing in small to very small companies, where the potential rewards can be high but then so can the losses.

Is it worthwhile?

The tips seem to be provided by seasoned, knowledgeable journalists. But being human they won't get it right all the time. Like any share tipping service there'll probably be a handful of spectacular successes and failures, with a wide range of winners and losers in between.

If you're happy to take a punt with a relatively small proportion of your overall portfolio and invest some time reading the information, then by all means try it out. But I certainly wouldn't recommend making potentially speculative investments like this with money you couldn't comfortably write off if it goes wrong. After all, if a share tipster really is that good at picking winners every time I doubt they'd need to continue writing share tips for a living!

Before taking out a subscription perhaps read the Midas column in the Mail on Sunday, along with something like Investors Chronicle (if you don't already) for a few months while making some pretend 'paper' investments based on what you read. Tracking their success or failure should give you a good feel for the risks involved and whether it's a style of investing you'll be comfortable with.

If you do subsequently invest real money I'd treat it as a fun, educational hobby that might make you a mint if you're lucky.

Read this Q and A at http://www.candidmoney.com/askjustin/852/should-i-subscribe-to-midas-extra

Give children some of my home to avoid IHT?

Question
My mortgage is fully paid so my home is in my sole ownership.

If, with a view to reducing inheritance tax liability I give shares in my home to my two children, making them tenants in common with me, in what circumstances would I require to begin to pay rent in order to continue to live in the house?Answer
If you give away an asset but continue to use it without paying market rent/value then HMRC will view the gift as having 'reservation of benefit' and very likely void the gift for inheritance tax purposes, i.e. it will remain in your estate.

So in your example you will need to pay market value rent to your two children in proportion to their share of the home. For example, if the rental value of the home is, say, £2,000 a month and your children own 25% each then you'll have to pay them £500 each per month. Bear in mind that the rental income received by your children will be taxable as income, although they should be able to deduct ongoing maintenance costs for their share of the home.

Unfortunately there's no legitimate way around this that I know of. But it may be worthwhile on the basis that provided you live for at least 7 years after making the gift your children's share will fall outside of your estate hence won't be subject to inheritance tax. Obviously the answer will depend on your overall financial situation.

Read this Q and A at http://www.candidmoney.com/askjustin/849/give-children-some-of-my-home-to-avoid-iht

Is my IFA recommending ISA transfer to pocket more money?

Question
I have a ISA Fund with Invesco Perpetual, which I've had for 10 years and the funds are performing well, I called up my IFA the other day and asked to invest a lump sum in order to top up my ISA allowance but he has said that I should move it to a fund supermarket Fidelity, as Invesco have stopped the commission he used to get.

By doing this will I be better off or has he mentioned this because he will be getting more commission from them?Answer
As of 31 December 2012 financial advisers have been banned from taking sales commission where advice is given. However, commission paid on existing investments and policies can remain in place until such a time the adviser recommends a change, for example a fund switch or additional contribution.

So if your IFA recommends additional contributions into your Invesco Perpetual ISA then yes, the commission tap will be turned off. However, fund charges should reduce too reflecting that commission is no longer paid from fund charges. Your IFA would then negotiate a fee (called 'adviser charge') with you that you can either pay him directly or agree to have it deducted from your ISA.

If he transfers your ISA to FundsNetwork the same will hold true. Commission is not allowed and he will have to agree a fee with you in writing, which you can pay directly or via your ISA.

While using a fund platform like FundsNetwork provides greater investment choice, this would be of little benefit to you if you're happy with your Invesco Perpetual fund(s) - especially if your adviser charges you a fee for recommending the transfer.

In the past Invesco Perpetual have very likely paid your adviser 3% initial commission on any new investments and 0.5% annual trail commission on the full amount invested. If your IFA tries to charge you more than this under the new regime then I'd ask him why and decide whether his advice and service justify this.

If you decide you can do without an adviser then perhaps consider using a discount broker/platform who'll either rebate commission back to you or use cheaper versions of the funds in return for an admin fee - Cavendish Online and Charles Stanley Direct are good examples.

Hope this helps.

Read this Q and A at http://www.candidmoney.com/askjustin/847/is-my-ifa-recommending-isa-transfer-to-pocket-more-money

Where to transfer my Hargreaves Lansdown SIPP?

Question
I currently have about £170k in my Hargreaves Lansdown SIPP. This is invested in various funds - not Investment Trusts at present.

Like many (I think) - I congratulated myself at being financially aware, and using HL - however, I am beginning to see some light regarding the real cost of trail commissions.

I am therefore thinking about moving my SIPP - either to a lower cost SIPP (such as Cavendish) or maybe even to a Personal Pension (Skandia?). I am unlikely to require access to commercial property investments, but might look at Investment Trusts in the future. I do not anticipate making numerous fund switches.

I am slightly confused over the costs of the Cavendish offering - for example it mentions a yearly admin charge of £291, but states that "Investors who have more than £150,000 in their SIPP will not have to pay the yearly charge below"? I have tried the Compare Fund Platforms site, with a portfolio >£150k, but this still seems to include the £291 annual charge?

I would be grateful for your advice as to what options to consider.Answer
Thanks, you're right to be confused as my comparefundplatforms site was showing a £291 annual charge on £150,000+ portfolios even if my calculations behind the scenes were handling this. Anyway, now all fixed, so thank you for pointing this out.

As for what might be the best decision in your situation, you can almost certainly save money by using a different SIPP provider.

Hargreaves Lansdown (HL) was once a trailblazer, being the first mainstream discount broker to rebate some trail commission to customers. However, despite the company making bumper profits it's been overtaken by a number of competitors in terms of overall cost in many scenarios.

In its 2013 Interim Results HL says its overall revenue margin on the Vantage platform is 0.81%, so on average it would have earned £1,377 on a £170,000 SIPP last year (after any rebates). Trail commission rebates average 0.17%, meaning on average you'll receive a £289 annual commission rebate assuming your SIPP is fully invested in funds (the SIPP rebate only started in January 2013).

Compare this to a platform using 'clean' funds such as Alliance Trust Savings (ATS) or Charles Stanley Direct, where you'll probably save around 0.75% on annual fund charges before platform fees, and the difference can be significant - I'd guesstimate a potential annual saving of at least £500 versus HL based on your pension fund size.

Cavendish Online could also prove good value given the £291 annual fee won't apply. You'll get a full trail commission rebate of typically 0.5% while platform fees (probably c0.25%) are built into annual fund charges.

While I still have to add Sippdeal to the compare site (there's a lot of data to wade through), despite stingy rebates they can be good value if institutional (i.e. 'clean') versions of the funds you hold are available. While still a bit hit and miss in terms of availability, as the platform fee ('custody charge') for using these funds is only £50 a year (regardless of how many funds held) Sippdeal can prove very good value provided low cost versions of the funds you want are on offer.

The Skandia personal pension via discount broker Clubfinance can offer a decent deal depending on the funds held, although I can't see a pressing reason to use it over the other options mentioned.

Hope this points you in the right direction.

P.S. If you decide to transfer away from Hargreaves Lansdown, watch out for exit charges - see my article here.

You might also find my guide to low cost SIPPs helpful (I need to update the Cavendish Online entry to reflect the annual fee being waived over £150,000).

Read this Q and A at http://www.candidmoney.com/askjustin/844/where-to-transfer-my-hargreaves-lansdown-sipp

Inheritance tax position on joint gift?

Question
How is the following assessed for IHT purposes?

My wife and I make a joint gift which is a PET. One of us dies within 7 years of us making the gift.Answer
Unless you’ve specified otherwise in writing the gift will be deemed to have been made 50/50.

The gift is initially classed as a potentially exempt transfer (PET), that is it falls outside of both your estate's provided you both live for 7 years. If either or both of you die within 7 years of making the gift then some or all of the gift will effectively remain in your respective estates.

Between years 3 and 7 of making the gift any inheritance tax (IHT) due on the gift is reduced by a 'taper relief', starting at 20% in year 3-4 and rising to 80% in year 6-7.

However, the key thing to remember about PETs is that on death they're the first assets to be offset against the (IHT) nil rate band, currently £325,000. So if the gift(s) total less than £325,000 each then it's unlikely the taper relief offered by PETs will be of any benefit. Other assets that might have otherwise fallen into the nil rate band could instead be pushed above it and taxed at 40% - although spouses can pass assets between each other without any IHT liability.

Read this Q and A at http://www.candidmoney.com/askjustin/845/inheritance-tax-position-on-joint-gift

Is Artemis Capital a diamond or dog?

Question
I hold the Artemis Capital ISA fund. FundExpert gives it its highest rating of 5 * while BestInvest gives it its own lowest rating of 1 * What a huge discrepancy in opinion means I don't know whether it's a Diamond or a Dog. How can such a difference of opinion exist ? Do I keep it or switch ? Please may I have your opinion.
Your website is quite a revelation ! The more I look, the more I find. It is brilliant. Thank you.Answer
Artemis Capital uses computer analysis to help pick stocks rather than the more traditional route of fund managers manually analysing and interviewing numerous companies in which they might invest. Artemis fund manager Philip Wolstencroft calls his system SmartGarp (growth at a reasonable price).

In very simple terms the SmartGarp process aims to identify companies that are growing faster than average but with a below average price. And in general it's worked well longer term. However, there have been periods of pretty major underperformance along the way.

The trouble with investment systems like SmartGarp is that they tend to get caught out when markets fundamentally shift direction - SmartGarp funds got hammered more than most during and after the 2007/08 financial crisis. It seems stock selection rather lagged major market changes, with SmartGarp funds continuing to favour stocks in some of the hardest hit sectors.

Bestinvest appears to be basing its 1 star rating based on several years of poor performance following the financial crisis. However, performance has picked up markedly for Artemis Capital recently, with the fund beating the FTSE All Share by 11% over the last year, something that is probably more reflected in FundExpert's ratings.

Which is right?

I think Bestinvest generally has a more thorough research process than FundExpert, but appears to be a year or more out of date re: Artemis Capital (the Bestinvest website still says ' as of yet the fund has not experienced a turnaround in performance'). FundExpert is obviously a fan of SmartGarp, but I would be wary of giving the fund a 5 start rating on the basis it may not cope very well if we experience major market shifts in future (as is quite likely).

On balance, I think Artemis Capital is worth holding provided you understand what you're buying and the potential risk of severe underperformance if we hit another downturn. Perhaps at present it's better suited to optimists than pessimists.

Read this Q and A at http://www.candidmoney.com/askjustin/840/is-artemis-capital-a-diamond-or-dog

Best all-round platform ISA?

Question
I am looking for a all singing all dancing isa, where I can trade ETFs, shares (including international), Investment Trusts and funds.

If that wasn't enough, I also want to have the facility to drip feed monthly into some automatically as well.

I am currently with Alliance Trust, they have a facility to do monthly trades. But it is convoluted (sending faxes) to set up this facility within my ISA and costly , I have been looking at Cavendish Online and iii, biggest problem is knowing what is available to trade, a good selection of Investment Trusts is desirable but would also like to trade in obscure ETFs like iShares MSCI Japan Monthly EUR Hedged (IJPE) for example.
I would like to buy and sell a few times a quarter, but also place monthly amounts into some funds and shares as well. Portfolio is over 100K.

Am i expecting too much, can I have my cake and eat it?

What do you suggest?Answer
Provided a platform allows share trading then you should be able to trade all investment trusts and exchange traded funds (ETFs) available via the London Stock Exchange, even fairly obscure ones.

Alliance Trust Savings actually sounds quite well suited to your needs. The standard trading fee of £12.50 is a bit steep versus others (and it applies to funds too), but less of an issue if you only trade a few times a quarter. The monthly dealing fee of £1.50 is very competitive and once a monthly direct debit is set up it should run smoothly with the minimum of fuss. The annual ISA platform fee of £48 is very good value for a £100k+ portfolio and annual fund charges should be very competitive due to being ‘clean’ priced (i.e. no commission or platform fees are built in)

Interactive Investor is broadly comparable on overall cost but has a wider range of funds on offer. Fund charges are generally higher but rebates bring these back down towards ‘clean’ levels. The £20 quarterly platform fee includes 2 free trades, so shouldn’t be an issue in your case. £1.50 monthly dealing is also available.

Charles Stanley Direct charges an annual 0.25% platform fee (capped at £150 for shares/inv trusts/ETFs) but offers a good range of 'clean' priced funds (with no dealing fees) along with share trading at £10 per deal (although no low cost monthly option). Sippdeal is also well worth a look, with £9.95 share dealing and no additional ISA fee.

All the above generally offer good value for money and may well suit your needs. Cavendish Online doesn't offer share trading, so not a viable option in this instance.

As the platform market is evolving quite quickly, on balance perhaps sit tight with Alliance Trust Savings for now and review again in six months to see whether another platform comes along with a better deal, as at present I don't think there's much in it.

Read this Q and A at http://www.candidmoney.com/askjustin/839/best-all-round-platform-isa

Can discount brokers still receive commission?

Question
Since 31st December 2012 are discount brokers still able to return "trail commission" to investors on existing and new investments? I'm confused by RDR and thought it had been banned - or is it now sourced in a different way from platform fees?Answer
Yes, they can, as the commission ban currently only applies when financial advice is given.

A commission ban on non-advised sales (i.e. when you make your own decisions and use a discount broker) is on the cards and a recent announcement by HMRC will make this less appealing for investments held outside of ISAs and pensions in any case, as any rebates will be taxable from 6 April 2013 – see my article here.

Fees paid by fund managers to platforms are due to be banned by the end of year, meaning platforms will have to charge investors directly, like an increasing number already do.

The upshot of all this is that at present there are two basic ‘models’ used by platforms:

1. Use standard ‘retail’ versions of funds that typically have annual fund management charges of c1.5% from which c0.5% is paid as trail commission and c0.25% as a platform fee.

Or

2. Use ‘clean’ versions of funds that typically have a c0.75% annual management charge (i.e. the commission/platform fees are not built in) and charge customers directly for any platform or discount broker fees.

The latter is more transparent and will undoubtedly become the norm over the next year, if not sooner – due to a combination of HMRC’s tax on rebates, the ban on fund managers paying platform fees and a possible commission ban on non-advised sales. All in all a good thing - customers can clearly see exactly how much each party is charging.

However, I predict that Hargreaves Lansdown (the largest direct to public platform) will be amongst the last to make the move to ‘clean’ funds – they arguably have the most to lose from giving customers complete transparency on how much they’re effectively charging them via commissions – as they refuse to disclose commissions received for individual funds.

Read this Q and A at http://www.candidmoney.com/askjustin/838/can-discount-brokers-still-receive-commission

Vanguard LifeStrategy 100 fund for pension?

Question
Hi Justin, firstly, I love the site - thank you for cutting through all the marketing noise on the internet.

I wondered what you thought about the Vanguard LifeStrategy 100 per cent equity fund as a simple, low-cost way of saving for retirement. I have over 30 years to go until I retire and have recently moved to a new firm, so no longer have a company pension. I already have an ISA account with Hargreaves Landsown, who offer the Vanguard fund for £2 per month, plus a TER of 0.33 per cent. So with a lump sum of £10k - plus regular additional savings - I'd have global equity exposure for an AMC of only 0.57 per cent. The geographical breakdown of their trackers are, I notice, almost identical to my company pension (where I've left £20k invested).

In theory, I'm probably more suited to a stakeholder pension, as I don't have much desire to make investment choices myself. But this strikes me as an ideal way of getting a simple, low-cost pension which I can pay into regularly and forget about for at least 10 years. What do you think? Or would you recommend a different approach?Answer
Thanks, glad you like the site.

The Vanguard LifeStrategy 100 fund offers a straightforward and low cost way of attaining global stock market exposure. It invests in regional Vanguard tracker funds with a bias towards the UK.

At the time of writing UK exposure is just over a third of the fund, around 8% is in emerging markets and the balance spread across developed markets, weighted towards the US.

Potential negatives are the low emerging markets exposure, assuming you're bullish about emerging markets over the next 30 years and not too risk averse, and lack of exposure to other assets suited to longer term growth like commodities. Although you could obviously address these issues by holding other funds, if you wish.

Although Hargreaves Lansdown tends to lag many competitors in terms of cost these days, in this instance they're actually good value as your calculation shows.

Given your wish for a simple low cost pension I think your suggestion is very sensible. As mentioned above, you could always augment the Vanguard fund with others in future if you ever decide to widen your investment exposure.

Read this Q and A at http://www.candidmoney.com/askjustin/834/vanguard-lifestrategy-100-fund-for-pension

Best SIPP for drawdown?

Question
There seems to be quite a bit of information available regarding the best low cost SIPP provider when at the pot building stage, but little or nothing comparing SIPP providers when at the drawdown stage.

I am about to go into drawdown with a small pot of around £ 75000 (after the tax free lump sum has been taken), I intend being a low activity investor and I would like to know which provider/s you think is/are the best for this size of pot when in drawdown.Answer
The information is on my comparefundplatforms website, but tucked about via the ‘charges’ link on the results page for each SIPP provider due to a lack of screen space. Creating a new page showing the various platform charges for all providers is on my bulging ‘to do’ list, so hopefully it’ll see the light of day soon.

In most cases the best value SIPPs at the pot building stage will remain best value during drawdown - your money is still mostly invested hence a combination of low fund and platform charges will probably still have the biggest impact on your bottom line. But, I agree, it's important to check any additional charges that apply during drawdown.

Anyway, the following SIPPs may prove worth considering in your situation - they're generally cost effective re: fund and normal platform charges.

Charles Stanley Direct
Setup income drawdown: Nil
Calculate income limits: £120
Income payment annual charge: £60

Interactive Investor
Setup income drawdown: £180
Calculate income limits: £180
Income payment annual charge: £150

Alliance Trust Savings:
Setup income drawdown: £240
Calculate income limits: N/A
Income payment annual charge: £90

Sippdeal
Setup income drawdown: £180
Calculate income limits: N/A
Income payment annual charge: £90

Bestinvest
Setup income drawdown: Nil
Calculate income limits: £120
Income payment annual charge: £100

Hargreaves Lansdown has relatively low drawdown charges (as follows), but tends to be rather less competitive re: overall fund/platform charges.
Setup income drawdown: Nil
Calculate income limits: £90
Income payment annual charge: Nil

Good luck with your decision.

Read this Q and A at http://www.candidmoney.com/askjustin/837/best-sipp-for-drawdown

Is now a good time to invest in funds?

Question
Is there a site where you can get buy or sell advice for funds like you can with shares, a lot of the suggested funds already seem to be at a peak and I wonder if this is the best time to buy.Answer
There are some sites that publish decent fund research, for example Bestinvest and Citywire, but they’re more focussed on the capabilities of underlying fund managers than market timing.

Interactive Investor has a vibrant community of investors swapping tips and while orientated towards shares, there are conversations about funds too that might be more what you’re looking for.

However, funds are generally more representative of the wider market than shares in individual companies. For example, let’s suppose company X announces a big drop in sales and its share price plummets by 10%. If you own the share you’ve just lost 10% on paper. If it’s held in a fund you own that also invests in 49 other companies in equal proportions the fund would fall just 0.2%. And if we assume the company is small and other share prices flat the main stock market index will barely move at all.

So funds are arguably less relevant re: hot tips for short term gains and more a bet on markets in general (obviously most funds focus on specific markets) and, if actively managed, the manager running the fund.

Is now a good to buy in general? I’ve been quite pessimistic about stock markets in general for a couple of years now and they’ve generally risen, so maybe I’m not the best person to ask! My concern is that prices have been more pushed up by Central Banks around the world pumping a fortune into markets than improved economic fortunes and I’m not convinced this is sustainable. Also, with interest rates so low some investors have been tempted into stock markets in the hope of getting a worthwhile return, again helping to support prices in an otherwise difficult climate.

I wouldn’t necessarily avoid investing altogether if you’re prepared to sit tight for 5-10 years, but maybe now is not the time to be placing any big bets unless you’re feeling very brave.

Read this Q and A at http://www.candidmoney.com/askjustin/836/is-now-a-good-time-to-invest-in-funds