Investment fees can significantly impact your overall returns, so it’s important to understand the types of fees you may encounter when using different investment platforms and funds. Here’s a breakdown of the key fees:

1. Platform Fees:

• Definition: Platform fees are charges that investment platforms (such as Hargreaves Lansdown, AJ Bell, or Vanguard) apply for using their services. This fee is typically a percentage of your total assets on the platform or a flat annual fee.
• Typical Range: Platform fees usually range from 0.15% to 0.45% per year of the value of your investments. Some platforms charge a fixed fee instead, which can be beneficial for larger portfolios.
• Example: AJ Bell charges 0.25% per year for funds, while Vanguard charges 0.15%.

2. Fund Management Fees:

• Definition: This fee covers the cost of managing a mutual fund, index fund, or Exchange-Traded Fund (ETF). Active funds, where managers choose investments, tend to have higher fees, while passive funds like index trackers are cheaper.
• Typical Range: Actively managed funds can charge 0.75% to 1.5%, while passive funds (e.g., ETFs) often have fees as low as 0.1% to 0.5%.
• Ongoing Charges Figure (OCF): This is the most comprehensive way to understand fund costs, as it includes the management fee and other operating expenses.
• Example: A popular ETF like the Vanguard FTSE 100 tracker might have an OCF of 0.1%, while an actively managed fund could charge 1.0%.

3. Trading Costs:

• Definition: These are fees you pay to buy or sell individual stocks, ETFs, or other investments. They apply each time you make a trade.
• Typical Range: Most UK platforms charge a flat fee per trade, typically between £5 to £12 for stocks or ETFs. Fund trades might be cheaper or even free on some platforms.
• Example: Hargreaves Lansdown charges £11.95 per stock trade, while AJ Bell charges £9.95.

Summary of Impact:

• Platform fees can erode your returns, particularly if you have a small portfolio, so choosing a platform with low or flat fees can be beneficial.
• Fund management fees have a significant effect on long-term returns, especially for actively managed funds with higher fees. Opt for low-cost index funds or ETFs where possible.
• Trading costs can add up if you trade frequently. Consider a platform with low or no trading fees if you plan to trade regularly.

Minimizing fees is crucial to maximizing your investment returns over time. Always review and compare these fees when choosing a platform or fund.