Sunday Times

September 19th 2004

Fund Charges

Investors could save hundreds of pounds on their fund costs by using a discount broker or fund supermarket.

Most unit trusts have an initial charge of about 5% and an annual fee of about 1.5%. The charges typically include commission of 3% upfront and 0.5% a year. However, fund supermarkets and discount brokers rebate some or all of their commission to cut costs.

Artemis UK Special Situations, for example, has an initial charge of 5.25% and an annual fee of 1.5%. If you invested £10,000 and it grew by 7% a year for 10 years, you would have £16,185 after charges.

Alternatively, you could buy the scheme through a supermarket such as Fundsnetwork. It typically waives about half the upfront commission it would normally receive from fund managers and negotiates discounts on the rest. It would reduce the upfront fee on Artemis UK Special Situations to 2.25%. But it still takes annual commission of about 0.5%, so total annual costs would be 1.5%.

After 10 years, your £10,000 investment would be worth £16,697 after charges, £512 more than if you bought direct.

Discount brokers may be even cheaper. Bestinvest for example, would rebate the full 3% commission on the Artemis fund and also knock another 2% off the initial charge, reducing it to 0.25%. However it still takes commission of 0.5%, so your annual fee would remain at 1.5%.

If you invested in the Artemis fund through Bestinvest, your £10,000 would be worth £17,039 after 10 years, inclusive of charges - £854 more than if you bought direct.
Some brokers also rebate part of their annual commission for a fee. Intelligent Money returns the full 0.5% for a fee of £35; Cavendish Online takes only the first £10 of any renewal commission on return for a £20 fee.

If you invested £10,000 in the Artemis fund through Cavendish Online, it would be worth £17,628 after 10 years.

Life Assurance

The cost of life insurance has plunged by almost a third over the past 5 years, according to Moneyfacts, a data company. You could save nearly £100 a year by reviewing your policy.

Take a male non-smoker who took out £100,000 of life cover for a 25 year term in September 1999 at the age of 29. The average premium at the time was £15.11 a month, according to Moneyfacts. He could now get a policy from Asda for just £8.90, saving £75 a year or £1,490 over the life of the policy. The figures assume that he reduces the term to 20 years.

Life insurers pay commission to brokers, which can be nearly double your first year’s premiums. Norwich Union for example, would charge a male non-smoker £9 a month, or £108 a year, for £100,000 of life cover over 25 years, assuming he is 30 next birthday. The firm would pay £204 commission.

Consumers could be wasting up to £1.2 billion a year on commission, according to Torquil Clark, an adviser. Its figures assume that about £2m policies are sold every year, with average commission of £600.

Torquil Clark rebates a quarter of the commission, with a minimum of £50. It says the average cashback is about £150.

Alternatively, Cavendish Online waives its commission in full, allowing the insurer to cut premiums, in return for a £35 fee.

For example, one of the cheapest insurers for a male non-smoker aged 29 who wants £100,000 of cover over 25 years is Liverpool Victoria at £7.70 a month. If you bought its policy through Cavendish Online, the premiums would be just £6.28 a month.

Kathryn Cooper