Moneywise unravels AJ Bell's new platform charges: winners and losers revealed
Investment platform AJ Bell YouInvest has overhauled its charging structure in a move that will cost wealthy fund-based investors more than £1,000 a year.
The self-invested personal pension (Sipp) specialist has moved away from a flat-fee system on its personal pensions, which generally favours larger investors, towards one that charges a percentage of the portfolio’s value, which can be a better deal for people with smaller portfolios. Charges can have a huge effect on the long-term growth of funds and savers should always check these before investing.
For example, under AJ Bell’s current pricing structure, it costs about £300 a year to hold £1 million worth of funds in a Sipp or Isa. From 1 October, it will cost £1,000 more at £1,375. But that’s still about four times cheaper than Chelsea Financial Services, which would charges an eye-watering £5,375 each year, according to platform experts the lang cat. The cheapest platform for seven-figure portfolios meanwhile is Interactive Investor (Moneywise’s parent company), costing just £176 each year.
An AJ Bell spokesperson says: “The impact of the changes will depend on what type of account people hold, what investments they hold and how much they hold. Some customers will see an increase, some will see a decrease.
“The rationale for the changes is that currently there are different charges for the different tax wrappers on the platform and for different investment types. The new structure is consistent in approach across tax wrappers and investments and ensures all customers are paying a fair price for the service they receive from AJ Bell.”
What exactly is changing?
Investors using AJ Bell currently pay a fixed fee depending on the size of the portfolio, which is applied on each account you hold. So if you have a Sipp, Isa and share dealing account, you’ll pay the fees three times. The charges are £20 a year on holdings up to and including £10,000, £60 a year if you have more than £10,000 and less than £20,000, and £100 a year if you have £20,000 or more.
In addition, fund holdings are charged a 0.2% fee, capped at £200 per year. This applies to Sipps, Isas and share dealing accounts.
These charges are being removed from 1 October, and the following will be introduced instead:
Percentage based charges for fund investments take force: Fund investors will pay a fee of 0.25% on any funds they hold up to £250,000. Fund holdings between £250,000 and £1,000,000 are charged at 0.1% and fund holdings between £1 million and £2 million are charged at 0.05%. There is no fee for fund investments of over £2 million.
- Percentage based fees for stocks and shares (includes investment trusts and ETFs): Any individual stocks or shares you hold will be charged at 0.25% per year. This is capped at £100 per year for Sipps and £30 a year for Isas and share dealing accounts.
- No fees for cash holdings: You won’t be charged any fees for money you hold in cash, regardless of your account type.
- Transaction charges cut: On top of this, transaction charges for funds will fall, from £4.95 to £1.50 per trade.
AJ Bell investors can compare the charges they’ll pay under the old and new systems at Youinvest.co.uk/charges-and-rates.
Who will win and lose as a result of the fees overhaul?
According to Moneywise’s analysis, the biggest losers will be people with seven-figure fund based portfolios. A million pound pension portfolio invested in funds, for example, will see fees rocket by £1,000 a year to £1,375 when the new pricing structure takes effect.
However, the biggest winners are those with fund holdings of up to £50,000. Charges on a £25,000 portfolio of funds, for example, will fall to £62.50, saving £87.50 compared to now.
For a small portfolio (£5,000), nine platforms cost less than £100 a year, according to the lang cat. The cheapest are Tilney BestInvest and Saga Investment Services, which each cost £15 a year.
Investors with large cash balances will benefit from the adjustment too, as fees on cash have been scrapped, saving up to £100 a year. However, investment platforms are never a good long-term home for cash savings. AJ Bell pays just 0.05% interest on cash balances up to £50,000, and nothing on larger amounts. A £20,000 cash lump sum, for example, would earn just £10 interest a year.
Investors who favour individual stocks and shares, including investment trusts and exchange traded funds (ETFs), are largely unaffected by the change.
Here’s roughly what an investor will pay each year, compared to their charges under the old system. This is a rough estimate, and fund transaction charges aren’t included (click to enlarge).
Steve Nelson, platforms expert at the lang cat says the changes are mainly to make charges easier to understand, but don’t particularly punish any types of investors.
“I see it as a simplification across the board. If you’re going to change your pricing structure some will always win and some will lose out,” he says.
Mr Nelson also points out that some of the annual account charges have been removed, which could previously cost up to £200 for an Isa, Sipp or share dealing account. For an investor with all three, this represents a saving of up to £600 a year.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.