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Alliance Trust Savings to offer no-dealing fee option

Investment | Unit Trusts

By Justin Modray, published 04 October 2012.
Helpful? 72

Discount investment platform Alliance Trust Savings is to offer customers an alternative charging structure on its i.nvest platform, without dealing fees, from 8 October 2012.

Some background

Alliance Trust Savings (ATS) has arguably led the way in terms of 'clean' platform pricing. It already rebates all sales commissions and charges customers, rather than fund managers, a platform fee. In theory this means rock bottom fund charges, as trail commission of c0.5% and a typical platform fee of 0.25% are effectively removed from a usual 1.5% annual fund management charge. In practice it more or less holds true, with most funds enjoying an annual rebate of between 0.5% - 0.75%.

This is the kind of charging the FSA seems determined to arrive at for all discount brokers/platforms within the next year or so, something that should benefit investors overall. The only real downside is that fixed annual platform charges (including ISAs and SIPPs) can be prohibitive for those with smaller portfolios.

Interactive Investor recently adopted a similar pricing model while discount broker Club Finance offers full rebates and 50p dealing in exchange for a 0.35% annual fee (great for shares, less so for funds). I'm sure others will follow in due course, although platform owning discount brokers who currently pocket most trail commission and fund manager platform fees might find it hard to pass all these charges directly onto their unsuspecting customers.

As things stand, ATS is very competitive for fund investments thanks to the aforementioned rebates. However, its £12.50 dealing fee is starting to look a bit steep and makes it one of the most expensive platforms if you only want to hold shares.

The new charging option

ATS will waive the £12.50 dealing fee on the first 20 trades a year in return for a higher annual platform fee, as follows:

Account TypeStandard PriceNew Fee Option
Annual AdminDealing FeeAnnual AdminUp to 20 deals p.a.Dealing fee thereafter
Dealing £50* £12.50 £120 nil £12.50
ISA £50* £12.50 £120 nil £12.50
SIPP £162 £12.50 £300 nil £12.50

Note: all annual admin fees include VAT at 20%. * charged quarterly at 10 & VAT.

Compared to the current standard pricing, dealing account and ISA investors will be better off under the new option if they place more than 6 trades a year (e.g. 3 fund switches) while for SIPP investors this rises to more than 11 trades.

Candid Verdict

This is a positive move that will benefit some ATS customers, both existing and new. It's disappointing to see the 'free' dealing capped at 20 trades a year, as the standard £12.50 dealing charge that applies thereafter is looking a bit steep nowadays. But in fairness, ATS needs to make a profit somehow as it doesn't receive lucrative 'hidden' commissions/platform fees like some other platforms.

Whether the new or standard pricing option is better for you depends simply on how frequently you'll trade - refer to the breakeven levels above.

Note re: Hargreaves Lansdown SIPP

Hargreaves Lansdown (HL) has announced it will start rebating some trail commission (in the form of a 'loyalty bonus') on its Vantage SIPP from 1 January next year. It's not surprising. While HL arguably pioneered the concept of low cost SIPPs, it's starting to look rather expensive against competitors (including ATS) for many investors once fund rebates and other charges have been taken into account.

Given HL's annual rebates tend to be between 0.1 - 0.2%, the Vantage SIPP will still look relatively expensive in most scenarios. But it'll likely offer a good deal for those with smaller pension pots where it's less cost effective to pay fixed annual administration fees in return for higher rebates.

HL estimates it will rebate £6 million to its SIPP customers next year. Shame it's not more generous, with latest annual pre-tax profits of £152.8 million it can surely afford to be!

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