What Are Fund Charges?

I have investments in a number of different funds in accounts managed by my financial adviser.  I received my statement recently and I’m confused about the different charges listed against the funds.  Why do they differ so much if they are all with the one adviser? 

Carl responds:

It is normal for your annual statement to show multiple sets of charges.

The advice charge is levied by the adviser company for the planning and advice associated with your investments.

If you hold multiple funds and accounts, it is likely that these are held on an investment platform. This is a service which enables the buying and selling of your assets, the collection of dividends and income, and the provision of tax wrappers such as Individual Savings Accounts (ISAs) or pensions.  You will get statements from your platform, detailing performance and fees.

Your statement may show Ongoing Costs, levied by the Fund Managers for the management of your funds.  These will depend to an extent on the level of management you have selected for your investments:  “actively” managed funds will usually be more expensive than “passively managed” because there is typically more trading and more of a focus on index tracking.  Another potential fund charge is Incidental Cost which is a performance related fee.

You may also see fees described as Transaction Costs relating to transactions within your funds themselves.  These vary considerably from fund to fund as there are several different calculation methods.

Of course, fund charges are only part of the equation.  It is important to consider investment returns after fees.  It may be worth paying a higher cost if the manager has shown consistent outperformance of a low-cost peer.

At Smith & Pinching we offer a range of model portfolios including those constructed using only passive investments and those using primarily actively managed funds – with the compensatory higher costs.  Between the two we have portfolios which blend both active and passive funds.

Any opinions expressed in this article do not constitute advice.  The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.