The Costs of Expat Investing
Paying lower fees can actually improve the quality of investments. Product charges, fund and advice fees all have an impact on performance so it's critical to understand which add value and which don't.
Good advisors charge for their services and beyond that, reduce costs and find the best value in every aspect of investing to maximise returns for investors. Here's our guide to fees you should expect, some to avoid and others you might not know you're paying. Find out more on our investment basics page.
What Should Expat Advisors Charge?
Fees agreed between you and your advisor should be easy to understand. Initial advice fees can be a fixed cost or percentage of the assets invested with ongoing fees usually between 0.5%-1% per annum. Fees are visible via online portals and taken monthly, quarterly, half-yearly or annually, depending on the platform used.
A non-correlated fixed fee is sometimes possible with ad-hoc charges applied for services as and when required. If you are dissatisfied with the service you receive, you should be in a position to either cease paying or change your advisor without penalty. If this is you, contact us for a second opinion.
Investment Platform Charges
Investment platforms charge a small fee as custodian of your assets from around 0.2% per annum. Other charges include trading costs ranging from zero up to £50, or calculated as a percentage of the transaction. All fees should be itemised on your statements and explained in advance.
Unbeknown to many, offshore bonds can also offer similar pricing. However, fixed charging structures for a contracted term are common as they pay upfront commissions to advisors, creating restrictions on liquidity and exposing the customer to penalties for early closure. Remember that fixed bond charges can be removed, see our Good to Know page to learn more on what to look out for.
Underlying Fund Charges
The running cost of funds is often overlooked by investors. Most fund managers offer multiple share classes of one fund with varied pricing for different target markets. Our article on reducing fund costs explains more.
Some offshore fund options incur entry costs of 5% which is paid out as commission, while others are free to enter but carry an exit penalty for early redemption. The cost of early redemptions is 5% in year one reducing by 1% per annum to zero after year five. It isn't necessary to pay high costs as funds have 'clean' share classes, using the same strategy but with lower fees and subsequently, higher returns.
Fund costs are critical to performance and fund literature can be misleading. Below is a guide to the charges to look out for and to ask your advisor about if in doubt.
Annual Management Charge (AMC) - Fund fact sheets generally display the AMC, the fund manager's charge for buying and selling assets attempting to outperform markets. Charges usually ranges from 0.5% to 1.5% per annum.
Total Expense Ratio (TER) or Ongoing Charge Figure (OCF) - These include the total running costs of a fund and are crucial to understand. In addition to the AMC, legal costs, buying and selling of assets and distribution expenses determine the TER/OCF which is not always obvious but is what investors actually pay, reducing fund performance as a result.
Fund costs impact on returns has fuelled a long-running debate over a managed fund's ability to outperform markets, and if their fees are justified. 'Passive' investments such as index trackers and exchange traded funds (ETF) don't employ managers and have risen massively in popularity. Tracking markets and benchmarks at significantly reduced costs over time can have a huge effect on returns. The smallest reduction in fees can enhances effect of compounding over the medium to long term and leverage returns for investors.
Guidance on cutting costs with full transparency will optimise your investments. Contact us today for a free portfolio review and receive expert opinion on investing in the most efficient securities available.