Investors beware the non-hidden charges
Recently, one of my colleagues received a letter from a well-known fund house informing him that his daughter's Child Trust Fund would shortly be attracting an annual account charge of £25 + VAT. "So what?" you might think. To put it in context, said colleague had, as many new parents in the same position, deposited only the original government voucher of £250 into the CTF; choosing instead to save on his daughter's behalf by other means. As such, given a current value of just less than £300 this charge represents an annual deduction of over 10%. To put it another way, the fund now needs to achieve 10% per annum in investment returns just to stand still, and this ignores inflation.
Clearly this is an extreme example, but management charges do vary across different investment types and providers. As such, they can play a big part in determining the relative returns and performance of such investments. It's a natural step from here to say that how well an investment performs, or how good an investment manager is at his or her job, is only part of the story (though they would never tell you that!).
In addition, if you invest in say, a SIPP (a Self Invested Personal Pension), then you may be paying charges to the SIPP provider, to an investment manager (in the form of an annual charge and also transaction charges), on the underlying funds, to your financial adviser and of course, to the taxman. Your investments have to make enough money each year to pay all of these fees (and to cover inflationary pressures) before you make any money yourself. If you take an income from your investments as well then you will normally want to cover this also so as not to see a decrease in capital. Clearly, fund-picking is an activity that requires skill, care and time for research.
For those who may be in a similar position to my colleague (and there are apparently many) may like to know his daughter's trust fund is now invested elsewhere. He's hoping it will realise enough to buy her a car when she's eighteen (more likely a pair of shoes if she's anything like my own daughter!).
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For further information please contact Shipman Financial Planning Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@shipmanfp.co.uk. This article is for general information only and reflects the views of the author only. You should seek professional advice in respect of your own circumstances. Authorised and regulated by the Financial Services Authority. Shipman Financial Planning is a highly respected professional adviser offering personal service and innovative advice.
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