maximising investments; minimising Fees

Without planning and research investing can come with more ‘investment’ than you bargained for. Namely, incurred fees. As we face the ongoing economic crisis, more people are turning to investments to protect their money from rising inflation rates. So now, more than ever, it’s important for all investors, new and experienced, to consider potential fees when choosing investments.

There is a range of potential costs, from management charges to transaction costs. Calculated incorrectly, they can affect your investment’s performance, compound losses, and restrict returns. Shockingly, finder.com research shows that the average UK investor could lose up to £1,200 a year on broker fees. No investor wants to lose money, let alone unnecessarily on fees, and especially, in the current economic climate.

What fees should you look out for?

Well, there are a fair few. Most can’t be avoided, but fees can be minimised. Let’s break them down:

Fund management fees: if you have investments in a fund, you need to consider the annual management fees. These cover the cost of your fund manager and are set by the fund management group. Occasionally, larger platforms will receive a discount from the funds, which means you might be charged a higher platform fee and a lower fund fee. Don’t be fooled by the trope of ‘higher price, higher quality’; a high fee does not guarantee high performance. Compare how funds have performed in the past, and from there you can judge whether the price is fair versus competitor rates. Past success is never a certain measure of future performance, but it’s a great place to start.

FX fees: if you have investments in stocks outside the UK, once you transfer them back into sterling there may be a hidden cost. Depending on the spread of your investments, this could be fairly large and will be impacted by the size of each transaction - and how many you make. This fee can’t be avoided, but being consciously aware of the hidden costs will help you make strategic decisions to minimise the total fees each year.

Commission: every time shares are bought or sold on a platform you will be charged a fee for the transaction. It will depend on each platform how it’s calculated; for instance, it could be a set fee or based on the size of the transaction. So, always make sure to research and compare ahead of choosing a platform.

Platform fees: as the name suggests, rather than linking to a transaction, these fees cover the general costs of using a platform for holding investments (custody charges) or administration fees - this includes both SIPP and ISA charges. How and what you are charged will vary, so research is important here. It may be a monthly flat fee, or it could be a percentage fee based on the total value of your investments. Typically, they will all be wrapped up together as platform fees.

It doesn’t stop there. Other hidden fees include; account opening fees, withdrawal fees, dividend reinvestment charges, and exit fees. Being mindful of every potential expense will help you make informed and measured decisions.

Managing and minimising platform fees

Over time, fees will add up, so something you considered okay to begin with may start to impact your total take home. Assessing your situation will drive which fee option suits you. For example, if you invest large amounts each month, a flat fee will most likely give you higher total returns than a percentage.

Likewise, if you know you will rebalance or buy and sell holdings regularly, this will increase your trading fees. Focusing on a long-term strategy will help to minimise hidden fees associated with a change of tack and make extra costs more ‘predictable’.

No more hidden costs

Though you can’t eradicate associated costs, being aware of them will ultimately put you in the strongest position going forward. With every decision you make, assess how it will contribute to your end goal and the cost of doing so - accounting for every fee, even if it's only a potential. By taking back control, you will maximise your chances of success.