Why are platform charges so complex?

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AFH CEO, Alan Hudson, recently announced that AFH will absorb platform fees. This begs the questions: why are platforms so expensive, and why are so many charges involved?

The recent Investment Platforms Study conducted by the FCA outlines how 29% of platform users were unaware of what charges they were paying. Some users were even under the impression that they weren’t paying any charges at all. Charging structures will vary across each platform, so here we have compiled a list of some of the most common platform charges that consumers will come across:

 

Platform charge

Sometimes referred to as an admin charge, this fee is often paid annually to cover the cost of administering your investment. The fee will apply to most platforms you come across and can either be paid as a flat fee or a percentage of your investment (often between 0.2 – 0.4%). AFH’s decision to abolish this charge was based on the firm’s belief that it ‘subtracts from the performance’ of the investment and creates no added value for the client.  

 

Fund dealing charge

This is a charge that can be incurred each time a trade is placed. The fee can be as little as £1.50 or as much as £15 each time a fund is bought or sold. The level of cost for each fund is dependent on whether the fund is passively or actively managed. The total operational and management costs of the fund then make up the ongoing charges figure (OCF), which is essentially the overall charge of being invested in the fund.

 

Exit charge

As the name suggests, this is a fee which is incurred if you decide to transfer away or encash your investment. The FCA study cites exit fees as being one of the reasons why many consumers, who would benefit from transferring to another platform, fail to do so. This has led to a consideration of banning the fees altogether.

 

Ongoing adviser charge

This is to cover the cost of the ongoing advice and expertise from your financial adviser, should you wish to use one. The charge can be dependent on the size of your portfolio but is usually around 1% payable annually. Some may view this as an unnecessary charge, given that you can choose to invest without an intermediary. However, Alan Hudson notes that a financial adviser, along with actively managed funds, can give ‘added value to the client.’

 

It has been predicted that returns on investments will fall in the coming months. AFH’s decision to end their platform charge has, therefore, come at an advantageous time for investors. In an environment where there are so many charges to consider, having one less fee to think about puts AFH clients in a beneficial position.

 

To discuss your investments and wider financial plan, call us and speak to an experienced independent financial adviser today.

 

This article is for generic information only and is not suggesting a suitable investment strategy for you. You should seek independent financial advice that takes your individual circumstances into account prior to proceeding with any course of action.

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