The Ermine takes the shaft from the RDR and the FSA

Stirred from its long slumber of ages, the Financial Services Agency has decreed that trail commission has been a scam. And that It Will Stop, Forthwith.

And I’ve just taken the shaft. Not in a huge way, but it still pissed me off. I’ve always been a firm believer that organisations that charge me money just to hold an account with them are taking the mickey and to be avoided. I don’t mind paying for a service when I use it, but paying just because the account exists hacks me off.

Which is why I’ve used iii for my ISA. You can get more touchy-feely service with the likes of Hargreaves Lansdown but in the end as Monevator/TA keep on reminding us, fees kill your returns.

III didn’t charge any annual fees and their per-trade charges of £10, while not the lowest were reasonable. It appears what made this possible was the trail commission on active funds paid by other people ;)

I was dismayed to receive a missive (appended at the end of this post) to the effect that iii were going to charge £80 annually as well as £10 per trade. Geez. Thanks, guys. The only thing that is stopping me telling Tomas Carruthers to stick his fees where the sun doesn’t shine is that all other ISA platforms are probably either dearer or moving to charging annually (many others do). It is only when all this kerfuffle has settle down in a year or so that it’s worth looking at alternatives.

Moving a S&S ISA is a major pain, because you usually get ripped for a transfer cost per holding. So you have to sell everything down to cash, so a S&S ISA transfer to new provider, and then recreate your ISA on the new platform. Or not, if you come to the conclusion you don’t want the same holdings though then you should ask yourself the question why didn’t you change this on the old platform ;)

That of course invokes two lots of dealing charges plus a 0.5% hit on the total value from stamp duty. Even in the case of my modest 30k ISA that alone is a £150 hit, so in practice S&S ISAs are sticky because of the cost and hassle of moving. You can open another one for future year’s ISAs, but rebalancing across such an ISA estate gets hard and it’s all a right pain.

There are other subtle changes here. For instance I will get right out of funds on iii as they are now charged at the same rate as ETFs. I will sell my HSBC FTAS trackers holding I have built up over the last year or so and buy the corresponding Vanguard ETF product. The historical fund preference over ETF logic because of the absence of trading costs has now been eliminated, and the forward pricing model of funds is not worth tolerating so I may as well minimise the TER.

I may have to find another platform and use DW’s ISA allowance to implement this approach to Grexit  – I was about to start doing it for European index funds in my iii ISA but that’s been KO’d now. Of course, there are no guarantees that another platform may not do the same as III and start charging dealing charges on funds, so all in all I could have done without the friendly help of the FSA’s RDR to queer the pitch at this interesting time. Perhaps RDR will hammer the very raison d’etre of index funds as opposed to ETFs.

Anyway, here’s what III have to say:

Dear Ermine,

Here is a message from the CEO describing just how we are going to obfuscate our previously simple offering to you. We will obscure things by bundling some services, charging more for others and complicating the process of comparing our charges with other ISA providers. Of course we are going to make out that we are doing you a favour, but basically we want you to trade a lot more often so as we get more money. Geddit? No, well, what we will do is charge you for two trades a quarter, constraining what you can do, and enticing you to churn more. Oh and we’ll wrap it all up in fluffyness of how we believe in the stuff we’ve been forced to do. Unfortunately, Mr Ermine, you weren’t using any of the funds that we were stealing some of the proceeds from every year, because you identified them as a ripoff. So you get to take the shaft, this time, buster. That OK with you? Because if not you know what you can do but it’ll cost ya. Bwahahahahahaha

Obviously they didn’t say that, and dressed it up somewhat, but I think my version is more succinct a summary ;) I’ve critiqued the Tomas Carruthers’ missive describing how I will be shafted in future using this colour.

Dear Ermine

Thank you for investing with Interactive Investor. More than ever individuals need to take increasing control of their own financial futures as successive governments and employers reduce their responsibilities in this area.

At Interactive Investor we consider it our duty to provide you with the dealing tools and information you require to actively manage your financial future, to do so with confidence and charged at a fair price. This is why we are now announcing important changes to our charging structure to take effect from 1 July 2012.

Funny you should say that, Tom old boy. Maybe the Ermine is getting a bit simple in his old age, but no annual fee and a straight £10 a trade charge or £1.50 batch trade sounded a lot more like a fair price than £80 a year whatever I do even if I don’t trade at all. This. Is. Not. An. Improvement.

New Pricing Changes

We are introducing a quarterly fee of £20, which gives you:

The first two real time trades (funds or equities) you make in each quarter, or

A combination of regular monthly investments and real time trades up to the value of £20 in each quarter.

To buy or sell funds we are introducing the standard charge of £10 for a real time trade or £1.50 for regular monthly investments.

Well that’s just pissed on the fireworks of this idea then, looks like IG index or another ISA provider may get that business instead.

We will pass on to you ALL income we receive from any fund investment you hold with us. On a typical fund with a 1.5% Annual Management Charge, this would be 0.64% of your investment every year

This is in addition to our existing highly competitive pricing that you will continue to benefit from:

  • Buying or selling shares at £10 per real time trade or £1.50 for regular monthly investments
  • International share trading also at £10
  • Our frequent trader rate, which allows you to buy or sell shares from just £5

Why introduce a £20 quarterly fee?

We believe that customers should be engaged with their investments and actively manage their portfolios. To support this, we are introducing a quarterly fee of £20. This fee is the only one we will charge you and you will not have to pay any other management, ISA or administration fee.

Ermine thinks to himself don’t bullshit me Carruthers, you’ll still charge me a dealing fee, which is not what the only fee we will charge you used to mean when I went to school!

If you already trade twice or more a quarter then this fee will make no difference to what you pay – it is effectively an advance payment of those first two trades for the quarter. If you are trading less than that then you will still have the right to your two trades in each quarter without any additional payment and hopefully feel encouraged to more actively manage your investments.

Well if you don’t mind me saying, Carruthers, you are a most impudent little toe-rag telling me when and how often I should trade. While I am in no way a passive investor, I aim to be a catatonic trader once I am fully invested, and that decision is up to me, not up to you you slimy little berk. Have you ever heard of Warren Buffet’s 20-ticket punch card investing model, ya sonofagun?

We will, of course, continue to provide you with the day-to-day custody services, including corporate actions and dividend processing, regardless of the investment types you choose.

We will repay all income we receive from your fund investment

We are not alone in believing that ongoing commission does not fit with independent investing. The FSA is banning it for investment business introduced by financial advisers from 1 January 2013. The FSA has not yet banned this income for execution only business, so we are leading the way by passing on all income that we receive back to our customers.

Writing, meet Wall is what I think you meant to say here Carruthers. Did it ever occur to you that salami-slicing your customer’s property would normally be considered stealing in any other walk of life? Howsabout you give me 1% of your income to Ermine Enterprises, after all, I enable your nice li’l lifestyle Tom? No, thought not. So why did you think this was okay until you got told not to, hein?

Still, it’s nice to see an old lag reformed, I guess, amazing what a little bit of heavy-handed regulation does to a chappy caught with his hand in the till. Any other offences you’d like the court to take into consideration?

Our competitors may repay a portion of the income they receive but do not always make it clear how much they are keeping.

No, you weren’t that clear on that front either until your Damascene moment, oddly enough coinciding with  when the FSA made you do it. Funny old world, Carruthers, isn’t it?

We will pass on ALL of the income we receive on your fund investments. This can make a significant difference to your overall returns, for example:

If you invested £10,000 each year for the next ten years, the rebate you’d receive with Interactive Investor would be worth £3,520. After 20 years, the total rebate would be £13,440. See how much you can save with our income rebate calculator

Oddly enough this calculation never appeared before as the fact that some iii customers have been ripped to the tune of £3k over the last decade. It really is a strange world we live in today, don’tcha think, Tom?

If you have fund holdings elsewhere, you can benefit even more by consolidating your fund investments with us.

You do not need to take any action as these changes to pricing will take place automatically with effect from 1 July 2012. You can find out more information and contact details from the FAQs on our site.

Continuing to improve our service to you

We will also continue to introduce special trading days, new tools and research for trading customers to further support informed and confident trading decisions. For example:

  • Our free ISA and free US stock trading days
  • Our new mobile trading app available on iPhone and iPad being introduced this summer
  • Privileged access to trading insights and new tools coming later this year
  • Our recently launched model portfolios which invest in a range of different assets – and we’ll continue to expand this range

All set up to jolly us along to trade more on the old ‘special offer everything must go’ model? What happened to the old KISS model you used to run round there parts?

When we set up Interactive Investor 17 years ago it was to let private investors control their own trading activities and financial future – something that barely existed at the time.

Hmm, and I was such a cynical sonofagun as to be under the impression you were in it for the money you could rake off rather than as such a social service. Life’s such a bitch when you’re so misunderstood Carruthers.

Nearly two decades later the investing landscape has changed beyond recognition. We intend to stay at the forefront of that change and work on your behalf to give you better trading access, information, value and service.

We look forward to supporting your trading and investment plans now and in the years to come.

Yours sincerely

 

Tomas Carruthers

 

Hi Ermine

TDWaterhouse could be worth a look. Providing you have £5,100 or more in the ISA there is no annual fee. The negative to them was that you couldn’t hold Vanguard funds however now Vanguard have introduced ETF’s buying Vanguard becomes a possiblility within the ISA.

The added bonus is that they also have no charge for hoding ETF’s within the ISA unlike Hargreaves Lansdown who steal 0.5%.

As you know I’m really sensitive to fees and I’m happy with them (don’t yet hold Vanguard though as that element of my portfolio is with SippDeal and the Vanguard ETF’s aren’t quite what I want or the lowest cost for me). Only negative seems to be that trades start at £12.50 but for somebody who also doesn’t trade often the damage is minimised.

Cheers
RIT

I am in two minds about this.

On the one hand, £80/year seems like a hell of a lot.

On the other hand, I have no idea how much trail commission they are getting from my fund holdings, and I think transparent pricing is a good thing.

I suspect the platforms will all pitch their fees high in the race to RDR and hopefully they will come down a bit next year.

Hi Ermine,

This is an issue that has been on my mind for some time now – I have a HYP-style ISA with one provider whose fee structure, amongst other niggles, has irritated me to the point of deciding to move. However, to do so I’ll either have to cash everything in and transfer or pay the transfer fees, either of which will cost me hundreds of pounds.

This is one of several reasons for changing tack and following an indexing strategy (based on the Tim Hale portfolio from the excellent Monevator) but this raises a new quandary: making regular investments into ETFs would incur a trading charge, which is massive in comparison to the small monthly contributions. The best I could come up with, to be able to use Vanguard funds and at the same time to minimise costs, was to open a new ISA with BestInvest (quarterly fee of £12.50+VAT :/) and to use a (non-ISA) sharebuilder account for the ETFs, only trading quarterly to reduce the fees further.

Still haven’t decided what to do with the HYP but the annual fee there is about 0.2% so not a massive deal.

Best regards,

Guy

1 Jun 2012, 9:14am
by ermine


@RIT TDW do seem to have got the annual fee right, though I wonder whether they have yet taken RDR into account. They might take the iii solution too. I’ve never understood people using HL for regular shares with that 0.5% fee. That’s so cheeky !

@Lemondy I always assumed the iii quoted annual holding fee was the trail commission – I’ve only ever held index funds with iii which had a holding fee of 0%. I had been tempted by Invesco’s High Income but the annual fee put me off. I can live with an initial charge but annual rake nope.

iii seem to have pretty much eliminated themselves from funds for me by introducing dealing charges on those.

@Guy, a regular passive PCA drip-feeder into ETFs could possibly roll with the iii fee structure and take a positive advantage from it :) You could hold say 4 ETFs and use 4 of the the eight yearly slots to increase holdings at one a quarter and the other four to rebalance out if necessary.

Last year I bought shareholdings 7 times and sold 3 times. One purchase and two of the sales weren’t living my values so I’d have bought 6x and sold 2x if I had got it right. However the purchases weren’t spread evenly across the year, half of them were in the late summer 2011. So as a temporally ‘active’ investor this fee structure doesn’t work for me. And I’m still building up my ISA. The aim is to slow down trading to lower levels in steady state.

What is galling is my only passive foray is a regular £100 monthly purchase of HSBC’s CPUKI FTAllshare index fund and a bimonthly purchase of LGAAK EM index. Both of those I will liquidate dealing charge-free in June as paying a 10% dealing charge is no way to carry on.

Your solution of using separate accounts for funds and for shares has something to be said for it. If the RDR leads platforms to specialise in good value for funds or for individual shares that may be the answer, alternating yearly ISA investing contributions to two different providers to keep everything ISA wrapped.

1 Jun 2012, 9:35am
by Lemondy


“holding fee of 0%”

I’m pretty sure that is not the whole picture.

The platforms have been getting trail commission even from low-cost passive index funds. Have a look here:

https://www.fidelity.co.uk/static/pdf/investor/research_funds/Fund-supermarket-table.pdf

The “supermarket fee” column is the trail commission received back by the platform. That is 0.1% for all the HSBC index funds.

So you would need to have £80K in HSBC index funds you should get £80/year back in trail commission via iii, I think.

Hi Ermine,

I got the email yesterday too and spent the night crying. I used to be such a supporter of interactive investor but since the change of platform, they’ve become a nightmare to deal with. I had a count up of times I’ve had to ring or write to them about missed dividends, dividend re-investments not working, missing money, etc. over the last 6 months and I’ve had to chase them over 30 times. They are a shower of **** as a company these days and Thomas Carruthers-la-de-dahs letter has just put the bloody icing on the cake.

I really don’t know what to do now. To liquidate everything and move will cost at least £300 I think. Hardly the purpose of tax-free, low-cost investing. In fact the whole thing would be better off sitting in a cash ISA. What does that say to the private investors of the UK?

Going forward, I’m thinking that the funds may be worth keeping as some of have management fees in the 1-1.2% range and that must give a bit of rebate back each year which may counter the £80 rip-off. However, new purchases into funds would only be able to be done on the regular investment day ( 23rd of each month), but of my £100 each month £1.50 will be swallowed in transaction fee! The few HYP shares I have will have to share that fate too (or maybe wait for their promised free transaction days, although of course they aren’t really free any more as we now pay £80 / year for the privilege of having an ISA.)

I’ve had a look around, like you guys have, and think that maybe iweb-sharedealing.co.uk may be the best. They don’t charge for the ISA, fund trades are free, the rest are £10, and they do a regular investment for £2 on four separate occasions per month. Operated by the Halifax share dealing service that iii used to have. I don’t know anything about them though.

If anyone has any other bright ideas on what to do to minimise costs then please share.

Hi Ermine,
Interesting backward step from iii. I’m with Selftrade, who have gone in the other direction. They have decided to abolish their management fee (which as £44 pa +VAT) IIRC, and have gone for an inactivity fee of £8.75 +VAT per quarter, which actually works out fractionally better for a ‘catatonic trader’, but ANY trading activity (even dividend reinvestment) in a calendar quarter means that the charge won’t be applied for that quarter. I haven’t spotted any sneaky changes in commission etc to compensate (though I haven’t looked all that closely). I decided when I opened the account that I would rather pay a modest and flat rate rather than try to get something from free, since lunches usually aren’t. I’m hoping that continual gentle feeding may prevent them from biting tha hand that feeds, which it looks like iii have done. Methinks they might face an exodus.

Oliver

I have attempted to make a spreadsheet based on trading costs I’ve found on the various share broker sites. You may find it useful.

https://docs.google.com/spreadsheet/ccc?key=0AhPotLU0DadMdEY4dl8xb21wQ0dCNDVWZ2FQZnNfc0E

I’m more in Lemondy’s camp here. These fees are annoying, but something is going to have to be paid somewhere. At least these fees are fixed and known costs, and their not percentage fees or similar. The difference with old style hidden percentage based fees is night and day.

Of course you might do as RIT suggests and chase the next one not charging anything, but I do wonder if any will be sustainable in the long term. I suppose it depends how confident they can be that they can up-sell you into trading or doing something else more lucrative for them.

Anyway, as passive holding grows in popularity and scale of funds invested, these platforms have clearly decided where the wind is blowing.

I preferred the situation 3 days ago to today — and my co-blogger The Accumulator will have some tips soon on how he sees the best way forward for passive investors — but I’m not surprised and this isn’t the end of it.

Personally I would look for a cheap option that ticks a whole load of other boxes (customer service, platform, security, whatever) then the dirt cheapest option by a few tens of basis points that probably won’t stay that way anyway.

Just my thoughts! :)

@Ermine – indeed, iii would have worked out nicely; sadly I’ve already committed! With costs soon to be at 10%, you’re making the right decision in moving. The separate accounts approach will work for now – when I build up a decent amount (i.e. transfer fees under 1%, for a rough target) I’ll switch the sharebuilder holdings into my ISA.

@Monevator: Agreed, they’ve got to make money somewhere and at least it’s quantified. As I think HL said a while back, they weren’t to be the first to make changes as a result of the RDR changes. My annoyance with them goes beyond that though and so I was pretty set to move anyway.

All the best,

Guy

I’ve been fairly happy with TDW. A good platform if not the cheapest, so I await future developments under RDR with interest.

I really don’t like standing charges but I guess with expected levels of activity over the next 3-5 years they might not be so bad.

[...] of the RDR not to my liking from the comments on the iii fee changes Thanks for all the great info in those comments, which helped me get things clearer in my head. I’ve mulled this over and this is the [...]

2 Jun 2012, 3:47pm
by ermine


@all thanks for the great comments which have helped me get some of this clearer in my head. There’s so much of it that I’ve put it in a new post RDR ISA Reflections :)

[...] can read the letter and enjoy it being taken apart by one outraged customer at the Simple Living In Suffolk [...]

[...] Looks like the angry hordes of Monevator’s men and Martin Lewis’s moneysaving experts have brought some pressure to bear in iii, formerly known as a reasonably good deal execution only broker until chief exec Tomas Carruthers and his band of merry men had  brainstorming meeting on the topic of ‘how can we make more money’ resulting in a sudden rush of blood to the head and this arrogant missive to the punters. [...]

Alliance Trust Savings have written to me to say they will charge £10+VAT per quarter per account. I have two accounts an ISA account and a non-ISA account with then.

[...] actions like NG’s rights issue shenanigans. Paradoxically I had to sell some index funds when iii threatened to start charging transaction fees on those, other than that I’ve sold n’owt since going HYP, with the exception of a slug [...]

[...] platform arena due to the change in regulation of funds, called the RDR. I have already taken one hit from the RDR last year. For this year I am going to sit tight, accept the risk of TD Direct going wrong, which I [...]

[...] when Interactive Investor decided they would charge me regularly to hold an ISA with them I told them to get on their bike. They also did some dodgy stuff in the runup to that, like charging to buy funds as if they were [...]

[…] Yes, I lose on the opportunities that selling dogs and investing in bulls offer. However, when I was on iii I tried one simple thing. You can run multiple virtual portfolios on there, and every time I sold a […]

 

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