What are the different types of investment fees? | Tuesday 17 Sep 2024 (2024)

Investing is, of course, about making money. But there’s no getting away from the fact that you have to pay some money to do it. Investment charges are usually levied by your account provider, the manager of the funds you’re invested in, and sometimes, even the government.

As charges can differ between providers, they’re a key factor when deciding who to invest with. To help you get to grips with charges, let’s look at the different types you’ll encounter, where they crop up, and how they work.

Account fees

This one can also be called a platform charge or account charge – depending on who you’re with. But we’ll stick with ‘account charge’ here to keep things simple.

Simply put, the account charge covers all the fees you’ll pay your provider to hold your investment account with them.

Though it can be called different things, the account charge works the same way from provider to provider. It’s what you pay them to hold investments in your account. The charge is usually stated as a percentage of the value of the investments in your account, or some providers charge a flat rate instead.

The account charge is often also referred to as:

• Service charge
• Platform charge
• Platform management fee
• Custody fee
• Annual management fee
• Administration fee
• Ongoing platform fee
• Portfolio charge

What's AJ Bell's account charge?

We look at the value of the investments in your account and charge you 0.25% of that value divided by 12 each month. If you hold more than £250,000 in funds in your account, your overall account charge will be lower. We also apply caps to the monthly charges that apply for shares in your account.

There’s no account charge for cash you hold with us. You can find the monthly caps for each of our accounts in our charges and rates.

When do I pay the account charge?

We collect account charges monthly – usually within 20 business days of the month end. Our account charge is based on the mid-price value of your account’s investments on the last working day of the month.

We'll collect your account charge for your SIPP, ISA or Dealing account from the available cash you have in that account, so you need to make sure you’ve enough cash in each account to cover this charge when it’s due. Or, if you prefer, you can pay the account charges for all your accounts from the cash in your Dealing account.

Dealing fees

Some providers might also charge you every time you buy or sell an investment in your account. This is usually a fixed sum but can be a percentage of the amount you’re buying or selling. You’ll typically pay this charge at the same time you make your trade. This is known as a dealing charge or dealing fee.

Dealing charges, too, can go by many other names:

• Trading charges
• Transaction charges
• Commission

Remember that if you’re frequently buying and selling investments, dealing fees can add up quickly. Learn more about the costs of frequent trading.

Another charge you may need to be aware of is the PTM levy, which applies when you buy or sell £10,000 or more of shares on the UK stock market. The charge you pay is £1 – which you’ll see on your contract note.

Learn about PTM levy

What's AJ Bell's dealing fee?

We like to keep our charges low and simple. That’s why it’s only £1.50 to buy and sell funds online, and £5.00 to buy and sell shares online. If you make more than 10 share deals a month, your shares dealing charge drops to £3.50.

Charges for tax wrappers

Some investment platforms charge you separately for the tax wrapper (i.e. SIPP or ISA etc.) in which you hold your investments. This can be fixed amount, or a percentage of the amount you hold in the wrapper.

This charge covers the service of administering your portfolio in your tax wrapper, each of which has different rules about tax and access. It may also be referred to as:

• Wrapper charge
• Portfolio charge
• Investment wrapper charge
• Account ongoing charge
• Pension or ISA fee

At AJ Bell, we don't have a separate tax wrapper charge. The cap on our shares account charge varies per account, so you may pay more or less depending on the account you're using. You can see the monthly caps for each of our accounts by visiting our charges and rates page.

Percentage rates vs flat rates

You may not have seen charges given as percentages before. But it’s quite common for providers to charge this way, and can work out a lot cheaper than flat rates – depending on how much you use the service.

Helpfully, many providers now offer a way for you to calculate how their percentage charge works out for the value of investments you’d have with them. This lets you see roughly what you’d be charged before signing up.

For some people, the certainty of a flat rate is preferable because you know exactly how much you’ll be charged each month. Though easier to wrap your head around initially, flat rates could leave you out of pocket. So it’s important to check what you’ll pay before opting for a provider with this charging structure.

Foreign exchange fees

If you go further afield with your investing and buy shares outside the UK, you’ll pay your provider a foreign exchange charge. This charge is for converting your pounds into the currency the investment is traded in.

You may also pay a foreign exchange fee when an investment you hold pays you a dividend. That’s because the dividend needs to be converted to pounds before it’s paid to you.

How do you spot charges?

Provider’s charges

To work out what you‘ll pay, the provider’s website is usually your best bet. Most will have a dedicated page or section of their website, or downloadable PDF, which covers the charges you could pay if you choose to open an account and invest with them.

Investment charges

The investments you choose will also have their own charges. And when you’re a DIY investor (not using an adviser or robo-advisor provider), these charges aren’t usually included in your provider’s charges. There are two main ones to look out for: ongoing charges for funds, and stamp duty for shares.

Fund charges

Funds have ongoing charges which cover the day-to-day costs of running and managing the fund. These charges are deducted directly from the value of your investment. Think of it as a bit like your income tax being deducted before you receive your salary (although it’s not nearly as much). Ongoing charges tend to be anywhere between 0.1% – 1%, depending on the fund you choose.

On top of the ongoing charge is the fund’s transaction costs. These can sometimes be 0%, or even a negative amount. Put as simply as possible, this charge covers the overall costs of buying and selling the investments within the fund over a year. It can be negative if the fund manager has used pricing mechanisms to offset these costs.

You’ll be able to see both the ongoing charge and transaction costs in the fund’s key information document.

Stamp duty

You’ll pay the government’s stamp duty reserve tax when you buy UK shares electronically. But you won’t pay it when selling your shares.

This tax is currently set at 0.5% of the value of the shares you’re buying, and is deducted at the same time you buy them. Your provider will sort this all out for you and send it off to the government.

Are there any other charges to know about?

When comparing providers, you should keep your eyes peeled for any small-print charges. The good news is that they’re now less common (the regulator has clamped down on hidden costs and exit fees). But they do still exist, and it can be a shock if you’re hit with one. Here are a few examples:

• Subscription charges
• Paperwork charges
• Transfer out charges
• Other ‘exit fees’ to cut ties with a provider

There are also government charges if you use an account not as it’s intended to be used. The main one to warn you about is the Lifetime ISA 25% government withdrawal charge. You’ll pay this if you withdraw money from your Lifetime ISA for any reason apart from to buy your first home or for retirement at age 60. So you need to be sure you’re definitely going to use it for one of those purposes.

Learn about the withdrawal charge

Disclaimer: These articles are for information purposes only and are not a personal recommendation or advice. How you're taxed will depend on your circ*mstances, and tax rules can change.