What are the real costs of holding investment trusts on platforms?


The Association of Investment Companies (AIC) and the lang cat have released new research to provide more clarity on platform costs when investing in investment trusts.

The research, which was conducted by the lang cat, revealed the costs of holding portfolios of investment companies between £25,000 and £1m on 17 different adviser platforms.

It also explored the costs associated with trading investment companies within model portfolios, showing which platforms have in-house dealing desks.

The heatmap below shows the cost of a portfolio invested 50/50% in open-ended funds and investment companies, with four transactions (buys or sells) a year.

The colour of each cell indicates relative cost, where green is cheaper and red is more expensive.

As can be seen from the heatmap, the costs for maintaining a £250,000 portfolio invested in this way range from 0.21% of client assets at AJ Bell or Alliance Trust Savings to 0.62% at Novia, a difference of more than £1,000 a year.

With green across the board, Hubwise appears to be the most cost-effective platform while Novia appears to be the least so.

Platform charges are split into ongoing costs (also known as admin costs or custody costs) and transaction costs for buying or selling investment company shares.

Ongoing costs are generally levied as a percentage of client assets, though Alliance Trust Savings has a flat fee model.

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Meanwhile, costs for trading investment companies varies widely with two platforms, Ascentric and Seven IM not charging for the service, while Raymond James and Alliance Trust Savings offer a charging option where trades are included.

Across other platforms, trading costs range from as little as £2 or as much as £25, or more for larger transactions.

Commenting on the research, Nick Britton, head of training at the AIC, said: “We are often asked by advisers which are the best platforms for holding investment companies.

“While best does not always mean cheapest, we have launched this research with the lang cat to help advisers navigate what can be a complex array of charging options and work out which platforms will be most cost-effective for their clients.

“The good news is investment companies are now available on more adviser platforms than ever before, and on 15 out of the 17 platforms where they are offered, can be held in model portfolios. However, not all platforms will be cost-effective for all clients, so care needs to be taken to choose the right one.”

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Steve Nelson, head of research at the lang cat, added: “Cost is clearly only one aspect of a wider platform selection or due diligence exercise.

“But what we have found from our research with the AIC is that there is clear segmentation within the platform market.

“One of the original visions of the platform market was a wrapper and investment neutral environment. It is fair to say it is not quite panned out like that.

“However, if advisers are looking to include investment companies within an investment proposition, then there are a handful of platforms – typically those with in-house dealing desks – where trading costs are not a barrier.”

About the author

Jayna is senior reporter and investment trust correspondent at Investment Week. She joined the publication in August 2015 after graduating with an MA in Multimedia Journalism from the University of Kent.

Jayna holds the NCTJ diploma and has experience in print, online and broadcast journalism. She regularly contributes towards the Investment Week monthly podcast.

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