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How much am I paying Bestinvest for investment management?

Financial Advice | General Helpful? 59

Asked by Edithm, submitted 20 August 2013.

Open Quote I have approximately £300,000 being " managed " by Bestinvest. While I know that I am being charged 1% (less refunded commission ) plus VAT, I would like to have a clearer understanding of the total charges involved e.g. including those being deducted within the funds themselves.

When I ask the question I just get told that it's approximately 0.6%/0.7% on top of Bestinvest's charges but I don't have a lot of confidence in this.

In addition, while I can see the "adviser charges" on each buying or selling transaction, I have to add them up myself in order to get a total for that element of the charges. Surely in this current era it should be possible to get a complete picture of costs without a lot of hassle?

Could you give me any suggestions as to how best to put it to Bestinvest in order to get the clarity I would like?

I should explain that I am interested because I am looking at how best to invest a further amount of money and am considering going to a different company to focus more directly on shares. I would therefore like to be able to have some comparison of the different costs involved in both approaches. In that context I wonder if you have any experience of Cheviot Asset Management Company? ( also know as Quilter Cheviot )

Many thanks for any help you can give me.
End Quote

Answered by Justin on 16 October 2013

Bestinvest has a range of ‘managed’ services these days, but it sounds as though you are either using its ‘Managed Portfolio’ or ‘Investment Management’ (option 2).services

The Managed Portfolio Service seems to largely invest in unit trusts and oeics held on Bestinvest’s platform and charges 1% a year plus VAT. There are no dealing charges.

The Investment Management Service (option 2) also invests in funds and charges 1% a year plus VAT, but adds dealing charges on top and may also favour investment trusts. The dealing charges are potentially quite steep at 0.4%, with a minimum of £30 and maximum of £100 per transaction.

So based on a £300,000 portfolio you are paying Bestinvest around £3,600 a year including VAT. And if the Investment Management Service then assuming 10 trades a year you could be paying up to an extra £1,000 on top in dealing charges – ouch.

In addition to the above any underlying funds held will have annual charges and the figure for each fund you need to look or ask for is the ‘total expense ratio’ or ‘ongoing charge’ – this includes both the manager’s annual charge plus other costs paid by the fund such as custodian and auditor fees.

The underlying funds (unit trusts/oeics) will either be ‘clean’ versions which have no commissions or platform payments to Bestinvest built in to annual charges, or ‘retail’ versions which include these payments - some (or all) of which Bestinvest may rebate to you. Bestinvest’s own terms and conditions are a bit woolly as it suggests clean versions were being used from 1 January 2013 yet the funds listed on its website are still mostly retail versions. Nevertheless, like all platforms and discount brokers it will have to move to clean versions for new business from 6 April 2014.

As a very general rule of thumb, clean actively managed fund versions tend to have total expense ratios of around 0.75% to 1% while the equivalent retail versions will be around 1.5% to 1.75%. Tracker funds are usually somewhat lower at 0.5% or less and tend to only offer clean versions.

So, I would ask Bestinvest for the total annual charges on your portfolio including their management fee and the underlying fund total expense ratios, net of any commission rebates - expressed as a percentage. And, if you use the Investment Management Service then also ask for the total sum you have paid in dealing fees over the last year.

Discretionary investment managers who prefer shares to funds may be cheaper overall since you won’t be paying annual fees on underlying funds. However, you need to be very careful as success will depend on the discretionary manager’s stock picking abilities and in my experience results can be very mixed. Also bear in mind that they are unlikely to have the necessary skills or experience to pick stocks in very small companies or overseas, so they may either end up using funds for these areas or ignore them altogether – and the latter isn’t a very satisfactory option.

Hope this provides some help and apologies for the slow reply; I’ve been rather tied up in recent months preparing the launch of Candid Financial Advice.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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