How do I assess investment costs?

Q: How do I assess investment costs?

As a relationship manager, I’m asked this from time to time. It might seem a simple question on the surface, but there’s a lot to unpick. Here’s how I talk to my customers about the costs linked to investing.

Step One - understand the difference between fees and charges.

It’s important you know what you’re paying for and who you’re paying.

Service fee - these are the fees that you pay Fidelity for our service. We don’t charge a service fee for any of our junior accounts. And if the total value of your investments is over £1 million (including your pension) we charge 0.2% up to £1 million and no further service fee beyond that. This is something that’s worth considering if you have investments with different providers dotted around as you’ll get a full transparent view of all your investments in one place.

Dealing fee - you don’t pay Fidelity for buying, selling, or switching funds but you day pay for dealing in shares, exchange-traded funds and investment trusts.

Investment charges - these are set by the companies and funds that you’re investing in. You don’t pay Fidelity for these.

• You can learn more about our investment fees and charges here

Step two - make sure you know what you’re investing in

Once you understand the difference between the types of fees and charges, it’s time to think about what you’re investing in. Over time, it can be easy to lose track of this. Before you take a closer at look at your portfolio, ask yourself a couple of questions.

• Have your personal circumstances changed?
• Has your attitude to risk changed at all?

You need to look at your investments with this in mind as it will help you assess if your choices still align with your goals. Then it’s time to really get under the bonnet of your portfolio. If you’ve not used the X-Ray report yet, let me introduce you to it. It’s probably one of the most insightful tools you have at your disposal when investing with Fidelity.

First, log in at fidelity.co.uk. Then you can either look at your whole portfolio by clicking on the ‘Annual holdings report’ on the main summary page. Or select the account that you’d like to review and click on ‘Annual holdings report’ (useful if you hold both an ISA and SIPP as you might be at a stage in life when you use one for accumulation and one for income - so your strategy might be different for each). You then need to pick a benchmark to compare it against (I wouldn’t worry too much about this, you just need a comparison. If in doubt, I’d go for the MSCI World PR USD - but you can learn more about the individual benchmarks when you select one from the list).

This will pull up an online analysis. To access and download the full X-ray report, click on ‘Export’.

There’s lots in this report, but - particularly when you’re thinking about costs - there are a couple of sections I’d like to draw your attention to.

• Holdings overlap - this is particularly interesting. You might think because the funds you’ve chosen are different, you’re well diversified. A lot of people find duplication in what they’re investing in. And - if that’s the case with you - you’re potentially paying more than once for investing in the same holding. That’s fine if that was your intention. But if it wasn’t your intention, you might want to rethink your strategy.
• Portfolio holdings - this shows, among other things, the ongoing charge. The chart below shows an overview of the cash and funds held in a portfolio. 

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.