MoneyMagpie

Jun 02

Save money by investing through a fund supermarket

If you’re thinking you really want to invest in some stocks and shares-based products – maybe an index tracking fund, a managed fund or directly into a company’s shares – you’re probably wondering how do you do it?

Well you can often invest direct, if you’re buying into a fund. Index trackers, for example, are nice and easy to invest in…you can even ring up the company and do it over the phone.

With individual shares you will need to go through an online broker which is a bit more of a hassle but nothing serious. You set up an account and then every time you trade (buy or sell) your shares you pay a fee (usually around £10 or so).

Or….you could do it all through what is called a Fund Supermarket. These are online ‘platforms’ that enable you to invest in, and sell, all sorts of stock market investments, usually at a cheaper rate than you could get by going direct.

Sounds good?

Here’s how you do it.

 

What is a fund supermarket


moneymagpie_shopping-trolley-graphic
A fund supermarket is a platform (a website that you can use for your own stuff) through which you can invest in stock market funds, and other types of funds such as bond and gilt funds, cheaper than you would if you were investing direct.

That’s the ‘supermarket’ element. The idea is that like with Tesco, Aldi and Asda, these fund supermarkets buy and sell in bulk so they can sell them to you cheaper than small outfits would be able to do.

Because, as you know, when you invest in a fund, there is an initial charge to set it up for you as well as an ongoing, annual fee to manage it for you.

With fund supermarkets you can often get the initial charge halved or even wiped out totally. They can also get the annual charges reduced.

So it can really make sense to buy and sell through these ‘supermarkets’!

 

 

How do they work?

For a start, fund supermarkets are only useful to people (like me) who do their own investing and make their own decisions about their investments.fund supermarket

If you’re the sort of person who likes someone else to manage your money – say an IFA or a stock broker – then these are not really of much use to you.

However, for personal investors like me, the ‘platform’ can be a real help. Not only is it often cheaper to use than going direct, it also helps you manage your ‘portfolio’ (your mix of investments) in one place.

 

Fund supermarkets can also offer information on the funds, including which companies they’re invested in, historical and recent performance figures and an analysis of their investment styles. Most of them will also let you to invest over the phone if you’re not keen on doing it all online.

Some fund supermarkets will only offer access to Unit Trusts and Open-Ended Investment Companies (OEICs) but others also offer access to stock-exchange listed investments like shares, Investment Trusts and Exchange-Traded Funds (ETFs).

With a fund supermarket you can also put your investments into an ISA or a Self-Invested Personal Pension (SiPP) to save on tax. Remember that dividends are still taxed 10% in both ISAs and SiPPs, but you don’t pay any other tax (particularly income tax) if you’re a higher rate taxpayer.

 

How do I save money through a fund supermarket?

fund supermarketRichard Webb from Salty Dog (see his blog with loads of investing tips here) says:

“If you open an account with L&G to invest in, say, a FTSE 100 index tracker, they waive the initial charge and you can buy the Retail (class R) units which have an ongoing charges figure of 0.83% pa.

“But if you invest through Hargeaves Lansdown fund supermarket you pay them 0.45% on all your investments, but you have access to the the Class C units which have no initial charge and an ongoing charges figure of 0.1% (which Hargeaves Lansdown then discount to 0.06%).

“So the total ongoing cost of investing through Hargreaves Lansdown is 0.45% + 0.06% = 0.51% so 0.32% p.a cheaper than going direct.”

Which Fund Supermarket should I use?

So which company is the best to use?

Richard Webb says, “I like Hargreaves Lansdown, because they offer the widest selection of funds and have a good website, but they’re not the cheapest.

Charles Stanley Direct charge 0.25% pa on all your investments and also offer a version of the L&G UK 100 tracker with on ongoing charges figure of 0.1%, so total cost through them would be 0.35%, less than half the cost of going direct.

“Once you’re on a platform you can easily trade an enormous selection of funds, ETFs, ITs, Stocks & Shares, etc”

There is also a decent platform at iShares, and Fidelity has one that they are promoting quite heavily at the moment.

WHAT DO YOU THINK?

2 thoughts on Save money by investing through a fund supermarket

  1. And here’s another example of why fund supermarkets are becoming more attractive to the small investor.

    Unless I’ve missed something, Santander is planning to replace its current normal dividend reinvestment arrangements, done via Scrip dividends, with a new dividend reinvestment plan (DRIP).

    It has not paid cash dividends for some time.

    My understanding is that the Scrip dividends were free (ie there was no share-purchase charge) and did not incur either Spanish withholding tax or UK income tax.

    Moreover, cash left over from the purchase of whole shares was held in a Santander Shareholder Account (SSA), paying 5.0% AER. This could not be used for ordinary savings – only that related to Scrip dividend purchases.

    From August Santander is – unless I have misunderstood something in its literature – changing the current arrangement so that cash dividends will again become the norm.

    Shareholders will have the chance to receive three of the four quarterly dividends in cash (which is taxable) or have the dividend value reinvested to purchase more shares.

    The fourth dividend will, for some reason that is not clear to me, be paid as a Scrip dividend.

    My understanding is that DRIP purchases will also be taxable, but unlike the Scrip arrangement, will incur a charge of 0.5% for the shares purchased.

    What’s more, any cash left after investing in whole shares will be held by the share-dealing firm,so Santander will pay no interest whatsoever on this money.

    However, income from cash dividends may still be paid into the SSA, whose interest rate will be slashed to 0.5% AER.

    Sounds like a triple whammy to the likes of me, who has a small shareholding and does not want the disproportionate cost of frequent small share purchases: a purchase charge, tax payable, and the virtual disappearance of the high-earning shareholder savings account, should I choose not to have my dividends reinvested.

    Doesn’t sound particular fair or customer-friendly.




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    1. Hi Neville

      This sounds annoying! I’ve asked Santander about it and this is their response:

      “Santander is returning to paying standard cash dividends in 2015 and reducing the number of scrip dividends offered going forward. In January 2015, shareholders were notified that the next four dividend payments will be a combination of one scrip dividend (Nov 2015) and three standard cash dividends (Aug 2015, Feb 2016, May 2016) paid in respect of 2015 profits.

      “Santander is returning to its previous model of paying standard cash dividends, normal for a company to pay in respect of profits generated in the year. The scrip dividend scheme was implemented as a temporary measure through the challenging financial crisis years. This was to maintain shareholder dividends and to reward shareholder loyalty while being able to recapitalise and consolidate capital reserves.

      “With the bank now entering a growth phase, we have decided to return to a more traditional form of cash dividend and will be issuing three standard cash dividends in the next payment cycle. Only one scrip dividend is to be offered in the forthcoming cycle as a change in Spanish tax legislation has resulted in the tax advantages of the scrip dividend being reduced and therefore Santander is reducing the number of scrip dividends going forward.

      “Santander is replacing the existing dividend reinvestment plan with a new DRIP which will operate without connection to an SSA. Since the reinvestment plan linked to your reader’s SSA is being terminated, no further reinvestments will take place from his account and funds will remain in the account earning interest. The interest rate on the account is being amended in line with the comparable range of savings products available.

      “While the scrip dividend scheme was offered by Santander itself, the new DRIP is provided by share registrars Equiniti Financial Services Ltd and any cash left over after reinvestment will be held with Equiniti on behalf of shareholders and added to the next cash dividend to be reinvested. Funds will not be held on deposit with Santander. In line with DRIPS offered by other companies in the UK, no interest is paid on funds between reinvestment and a fee is charged for the reinvestment of cash dividends. The fee charged for the Santander DRIP is 0.5%, which is very competitive compared to the industry average and is applied to the value of the shares purchased, not each share purchased as mentioned in the email.

      “While the funds in your reader’s SSA will no longer reinvest, shareholders who wish to use the balance to purchase shares can close their account to receive a cheque for the balance plus accrued interest and use the Free Share Purchase Service, which allows shareholders to buy shares free of dealing costs. This scheme operates on a monthly basis and is exclusive to shareholders with shares held in the Santander Nominee Service. For further information please visit santandershareview.com and click on ‘Shareholder Services’ > ‘Buy and Sell Santander shares’.”




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