Deal or no deal?

When high dealing charges rub salt into the wounds.

Author Photo
Ian Millward
Share:
Blog Image

It’s quite common for discretionary investment managers to charge dealing fees, even on funds. We’ve come across a number of examples when taking on clients from the likes of Bestinvest, JLT and Speirs & Jeffrey.

Are they fair or a rip off? Let’s look at an example and you can decide:

JLT Wealth Management charges 1% a year fee on the first £500,000 and then 0.5% on anything above that for looking after your money. Not cheap. But every time they switch funds (and remember, under a discretionary service they can do so whenever they see fit) they also apply a dealing fee.

The JLT dealing fee is 1% on the first £15,000 and 0.50% above, plus £30. So switching a £20,000 fund will cost £410 in total. That is £175 + £30 for selling and the same again for purchasing the new fund.

This sucks at every level:

  1. You’ve already paid a high annual fee to be looked after
  2. Just a handful of fund changes a year will add substantially to your costs
  3. And, most importantly, dealing is no longer an administrative by-product. There is now a very big financial incentive for JLT to make changes

And if a JLT client decides to withdraw money or take their business elsewhere the dealing fees could really leave a sting in the tail. Suppose you have a £400,000 portfolio invested across 20 funds of £20,000 each, the JLT dealing costs to move the portfolio to cash would be £4,100!

Those wanting to transfer elsewhere are usually offered some respite, as discretionary managers tend to offer the option of transferring out investments ‘in-specie’, i.e. ‘as is’. In the case of JLT they charge £15 per investment, Bestinvest charges £25. This could still lead to a bill of several hundred pounds, but is certainly less painful than transferring as cash (which would incur dealing fees).

Why do discretionary managers get away with such awful dealing fees? Probably because they can.

Justin is pretty vocal when it comes to high fees and the common defense we often hear is that ‘my clients are happy to pay my fees’ and then some weak comparison between whether you want to drive a Ford or a Jaguar or wear a tailor-made suit versus an off the peg (for the record Justin drives a VW and I drive a Volvo). In most cases the argument is poppycock. People pay the fees because nobody has ever clearly spelled out clearly what they are; what a sensible overall fee should be; because they have built up some (misplaced?) trust and rapport with the person in front of them; and because it feels hard to move and because inertia is a powerful motivator.

So when it comes to ‘Deal or No Deal’ then in our view it is definitely No Deal. In fact, for these clients it is time for Swap Shop.

Receive our regular updates

Enjoy this blog? Receive our regular updates covering a whole host of topics...

I understand and agree to your Privacy Policy.

Can we help?

We expect to save you a lot of money versus comparable services. To arrange an initial 10–15 minute chat call us on 0203 397 7280 or click below.

Call me back
...

6 Riverside Court
Bath
BA2 3DZ

0203 397 7280
hello@candidfinancialadvice.com

Candid Financial Advice Limited is authorised and regulated by the Financial Conduct Authority. FCA number 630986. Registered in England and Wales, company number 8261124, 6 Riverside Court, Bath BA2 3DZ.

Decisions should not be taken based solely on the content of this website, individual advice should be sought first. Regulations, levels and bases of taxation are subject to change. Tax planning is not regulated by the Financial Conduct Authority. We are not responsible for the content of external links. The content on this website is aimed at UK residents.

We record telephone calls for quality and regulatory purposes.

© Candid Financial Advice Limited 2013-2022