Getting Started is our video series aimed at first-time investors, featuring JONATHAN HOLLOW. This time we look at the different fees and charges that investors have to pay and what you can do to keep them as low as possible.
TRANSCRIPT
Fees can gobble up your retirement savings. So it’s vitally important you keep them as low as possible. There are four main types of fees that you’ll have to consider when thinking about investing in a pension. So the first one is a platform management fee, and that’s really like a subscription you pay to access a technology platform that helps you to invest at all. Then there’s annual management charges, and these are charged by the funds you invest in to help them buy and sell shares on your behalf. Then there are transaction charges or transaction fees. The good news is you only pay these when you buy or sell shares. So that can be helpful. In our book, we suggest you do this as infrequently as possible.
And then there are financial adviser fees. And I suppose the best way of thinking about this is it’s a bit like a personal shopper. You’re paying the financial adviser their own fee to manage the other things that the other three fees involve.
On their own, each of these fees may not seem that significant, but they can really add up. And if you’re not careful, it’s quite easy to be paying 4% of your assets each year in fees. Now, if you think that is round about the safe amount of money for you personally to withdraw as a retirement income, it’s easy for you end up paying the same or more in fees as you do earn yourself for your retirement.
In our book, How to Fund the Life You Want, Robin Powell and I go through all these fees and critically, we tell you where to look to get the lowest possible fees. I’ve managed to reduce my own fees to 0.28%. So that’s less than a 10th of that nightmarish 4% amount. It can be done, and it is very important to do it.
ABOUT JONATHAN HOLLOW
JONATHAN HOLLOW worked for the UK Government’s Money and Pensions Service and is a writer and commentator on consumer education and protection. He is the co-author, with Robin Powell, of the award-winning book How to Fund the Life You Want, which is published by Bloomsbury.
ALSO IN THIS SERIES
Should you buy funds or individual shares?
Should you put off investing amid uncertainty?
How much risk should I be taking?
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