Confession of neglect

[Steveam]

I am thinking of moving my ISA (described below) to a passive world tracker with someone such as Vanguard or its components. I have not yet decided on either the platform (this will depend on costs – Vanguard’s annual account fee is .15% up to £250,000 & then free capped at £375/annum, and what they offer on the platform) or the specific choices of world tracker (this may depend on the platform chosen).

I have built-up an ISA over many years with BMO Asset Management (formerly Foreign & Colonial) - the total ISA is a mixed bag of BMO ITs including F&C, EAT, Graphite, Commerial Cos, Smaller Cos, and Capital & Income. These are actively managed ITs not passive in anyway. The total value is about £500,000. I make monthly contributions to use my annual ISA allowance. As we are approaching the end of the tax year I’ve been looking at this ISA holding and am no longer satisfied that it is right for me as I get older, want to simplify and want to press down on costs. The total costs with BMO last year were about 2.5% (£11,500 both fund costs and platform costs). On a rough and ready calculation a move to VWRL held with Vanguard would mean costs of about 0.3% (under £2,000 both ETF costs and platform costs). The only reason I’ve become so aware of the costs is the “new” consolidated costs schedule: really quite shocking how neglectful I’ve been.

My record keeping for the ISA is poor - I’ve rather treated it as a black box.

I am not, of course, trying to compare the BMO costs/offering which is a set of actively managed funds to my decision to move towards holding a passive world tracker ETF. I’ll probably start the Vanguard ISA next FY.

Any comments (I’ll start with: stupid, idiotic, mad!)

Best wishes,

Steve

[Backache]

First thing I'd say is that you are well ahead of the game.
I don't know what your contributions have been but to accumulate around £0.5M isn't bad

It is though sobering to see how costs eat into your returns but it hasn't been that many years that truly low cost investing has been particularly easy.

I'm not sure from your post whether your intention is to move everything across to Vanguard or to use Vanguard for new money's
If just the latter I think you need to look at alternative platforms for your existing holdings.
Monevator has a pretty good table of costs for on line brokers.

[Alaric]

The total costs with BMO last year were about 2.5% (£11,500 both fund costs and platform costs).

If you hold ITs, there's the internal costs of the funds taken out of the net asset value. Many if not most platforms don't charge for custody of ITs, as unlike OEICs, there's no historic precedent of paying trail commission.

[Steveam]

Thank you Backache and Alaric.

I've been contributing the full PEP/ISA allowance each year from a few years after PEPs were introduced. The contribution and compounding have led to the final sum and as with all compounding models most of the growth comes late in the sequence - all this has been helped by the very large increase to the ISA contribution limit.

BMO now provide a document with the Savings Plan statement called "Your Costs and Charges Disclosure" This document brings together Service Costs which are 0.05% and Product Costs which are 2.20%. If I'm understanding the terminology correctly the Service costs are essentially the platform costs plus something for administering the regular contributions and providing valuations etc - not of great significance. The big cost is the Product Cost and this is the individual active funds I've chosen.

The costs for the last year come to £11,500 (platform plus product costs) and it seems to me that, if I transfer everything to Vanguard, I can reduce the costs to about £2,000 (platform plus product costs). My current thinking is to move both the current total and all future contributions. I probably won't use VWRL as I'm already somewhat overweight UK equities.

Best wishes,

Steve

[Alaric]

BMO now provide a document with the Savings Plan statement called "Your Costs and Charges Disclosure" This document brings together Service Costs which are 0.05% and Product Costs which are 2.20%. If I'm understanding the terminology correctly the Service costs are essentially the platform costs plus something for administering the regular contributions and providing valuations etc - not of great significance. The big cost is the Product Cost and this is the individual active funds I've chosen.

At least some of the regulations for disclosure of costs in ITs have been drawn up in a misleading manner. In particular if any of the ITs have indulged in gearing, the interest on these borrowings is shown as a cost. That's something of a false comparison to funds without gearing as the cost should be covered by dividend income or gains on the additional investments purchased with the borrowings. It's only where there have been price falls that the gearing is loss making. Usually ITs expense charges are in the 0.5% to 1.0% range.

[Steveam]

Alaric: Thank you very much indeed.

I've now looked at the individual KIDS and the numbers are:

F&C IT: 1.2%
BMO Global Smaller Cos.: 1.15%
BMO Cap & Income: 0.82%
EAT: 1.23%
BMO Comm Property: 2.37%
ICG Enterprise: 3.93%
plus about 3.0% carried interest etc

Applying these numbers to my own holdings would roughly come to 2.5% so give or take a little this makes sense. I'm sure I'm not really understanding all this but ICG Enterprise has been a good performer but not good enough to justify these costs. Lots of food for thought but I may well just take my naive starting position of trying to slash costs.

Once again, your comments are much appreciated.

Steve

[Alaric]

BMO Comm Property: 2.37%
ICG Enterprise: 3.93%

Perhaps it's reasonable that a "commercial property" fund would be expensive to run. I looked up ICG Enterprise. It invests in "Private Equity", in other words shares in Companies not otherwise available to buy on stock markets. Again this is plausibly expensive to run.

Both Commercial Property and Private Equity would be difficult if not impossible asset classes to cover with a passive fund or funds.

[Hariseldon58]

@steveam

From the ETF perspective there are developed world trackers from Vanguard and HSBC at .18% and .15% respectively and you can add a separate Emerging Markets ETF ( Thera an even cheaper one from Lyxor )

The cost of ITs is not always clear from the official figures, the logic and interpretation is not consistent...
I’d take a look at the annual reports.

A low cost IT that benefits from a discount and sensible gearing often has negative charges effectively.

The simplicity of low cost market exposure through an ETF is attractive if you have better things to do !

I have recently dived back into ITs as I have “a cunning plan” but expect to largely go back to the ETFs over the next couple of years.

However ITs have solid attractions, good for less liquid assets, active management that is distinctive is available at low cost, independent boards and a trust paying a solid dividend with a good revenue reserve is always comforting in poor markets ! I expect to hold onto quite a few.

[Cell]

Hariseldon58

Which Investment trusts do you currently hold vs ETFs? What is your cunning plan?

Thanks

[Hariseldon58]

@cell

The ‘cunning plan’ .... things are never as bad as they seem. UK market is hated, some IT’s are at large discounts, unjustified in my view.

I moved heavily out of sterling assets in early 2016 and this handed me a large currency gain and if I am correct, then sterling will (eventually) recover and I will hand back a substantial 6 figure sum... my change in portfolio gives a higher yield, an additional £25k per annum. In the fullness of time I hope sterling will improve, UK assets will perform better and the discounts will narrow. If I am right then I get a triple gain, I will take profits and repurchase some of overseas assets I sold in the third quarter 2018.

If I am wrong then I get a pretty good yield, which I believe to be pretty reliable, sterling falls, I still hold substantial overseas assets, I’ll probably stay level in sterling terms. I bought 40 plus Trusts and have sold 6 or 7 so far and gone back to the Passive assets they came from, with gains. The trusts have an income/value and small bias plus a few others,(not all are UK )

I understand Neil Woodford has expressed similar thoughts re UK market, fortunately no one is looking over my shoulder and I won’t get fired if I am wrong ! I could look very foolish , who knows ? I have only made 5 major changes in my portfolio this century , the first 4 worked out, the jury is out.

[Steveam]

Thank you all for your comments. I’ve now decided that moving everything to the Vanguard platform would be both too restrictive and that it is not necessary to pay a platform fee (albeit that this is small in the scheme of things). I’m inclining towards a move I-Web. There are one or two ITs which I’d like to hold in addition to holding ETFs.

Best wishes,

Steve

[Hariseldon58]

@steveam

If you are not holding funds, just ETFs and Investment Trusts or shares then Hargreaves Lansdowne are very good , great service and ISA charge at £45 a year is reasonable.

IWeb is cheap like it’s sister operation Halifax Share Dealing but the customer service side is not as good, web site not as good but the cost is very low and funds have no % charge ...

Experience with some other well known platforms makes me appreciate HL’s good service, the frustration of something going wrong is ...significant!

[Steveam]

Thank you Hariseldon58.

I have trading accounts accounts with both IWeb & HL already so I can go either way without undue difficulty.

I will be holding only ITs and ETFs

I assume 12 deals/year and $20,000 dividends from ETFs.

The costs are:

IWeb: no set-up cost, no maintenance costs, £5 dealing fees (=£60) and 1.5% FX charges (=$300 =£230) = Total £290/a

HL: no set-up cost, £45/a maintenance costs, £11.95 dealing fees (=£143) and 1.0% FX charges (=$200 = £153) = Total £340/a

Not much in it. Again, many thanks.

Steve

[StepOne]

IWeb is cheap like it’s sister operation Halifax Share Dealing but the customer service side is not as good, web site not as good but the cost is very low and funds have no % charge ...

I've been using iWeb for years and have also moved my wife's ISA to them - and I don't have a bad word to say about their customer service. The online chat facility is great and I don't recall ever having had to wait more than a minute or two. The are miles better than iDealing, who I moved away from.

(Actually, there is one issue with them - they deduct 30% withholding tax from my Somero dividends, despite me filling in a W8-BEN form. Apparently they are unable to reclaim it because of the settlement route Somero use, but some other brokers seem to be able to do it.)

Cheers,
StepOne

[Dod101]

I moved heavily out of sterling assets in early 2016 and this handed me a large currency gain and if I am correct, then sterling will (eventually) recover and I will hand back a substantial 6 figure sum... my change in portfolio gives a higher yield, an additional £25k per annum. In the fullness of time I hope sterling will improve, UK assets will perform better and the discounts will narrow. If I am right then I get a triple gain, I will take profits and repurchase some of overseas assets I sold in the third quarter 2018.

Of course as you know I have no doubt, many UK shares derive a very large amount of their revenue/profits from overseas and so you have a currency gain built in if sterling weakens, it is just that it is not so easy to spot. In fact there are not many UK quoted shares that are purely domestic and so to a greater or lesser extent, the UK market is much influence by movements between sterling and the rest of the world, notably I guess the US Dollar, because many currencies are linked one way or another to it.

Dod

[Hariseldon58]

@DOD

I appreciate that many UK shares are heavily exposed to foreign currency but as I posted, I moved out of sterling assets, some were shares , some were other sterling assets including some bonds etc, clearly sentiment is very much against anything related to the uk at present!

I suspect that over time the Brexit situation will sort itself out, it may well get worse before it gets better though !

[Steveam]

I’ve decided to move my S&S ISA from BMO to IWeb. I thank you all for your comments above. Once the transfer is (successfully) completed I’ll post to let you know how long it took and any wrinkles.

Best wishes,

Steve

[JEANHILL]

Good morning,
I have held my ISA with idealing for about 10 years. I am very happy with the low fees and service (and patience with me). I am interested in investing in ETFs and am looking for recommendations. I am not an experienced investor...I usually ask my son about what to buy but I thought I'd do a bit of my own research.
Thank you for any help. Jean

[tjh290633]

What do you hold already, Jean?

TJH

[JoyofBrex8889]

Hi Jean,

It’s tricky to know what is best for you without knowing your risk appetite and existing portfolio, financial aims and circumstances.

With that caveat: I quite like the ETF Vanguard VWRL.

It is a passive global equity tracker, very diversified but no fixed interest exposure, and its costs are inexpensive.

That said, when the same what to invest in question arose with a family member recently, I pointed them towards Fundsmith Equity: The video of the Fundsmith AGM is online and once she watched Terry Smith deliver his investment philosophy and explain the fund she felt she understood well enough to trust him to actively manage her money.