Note: This entry has been restored from old archives.
Recently I had reason to rank the funds available via a Hargreaves Lansdown Vantage SIPP by their TER. Of course, it isn’t in HL’s best interests to make this easy so I ended up having to work it out the hard way. I’ve compiled a list that is correct as of around Friday August 1st, a portion of this is below. What I was looking for was a list of funds with a “real” TER of 1.1% or less. To get “real” I’m calculating the max of HL’s advertised TER and Annual Charge with their special magic additional charge factored in where it is applicable. HL add another 0.5%+VAT (0.5875%) to the AC for some funds, as far as I can see this mainly because they don’t like people investing in index-linked funds.
What’s the point? Comparing the HL SIPP to stakeholder/personal pensions. Why this criteria? Because the cheaper stakeholders and personal pensions are generally available at a flat/average annual charge <1% if acquired via a discount broker. Mostly these pensions offer only a small range of funds you can include in your pension portfolio. So, this list aids a like-for-like comparison of what is supposedly the cheapest SIPP (supposedly offering >2000 funds) on the market with market-leading non-SIPP pensions (typically offering from 10 to 300 funds.)
I chose 1.1% as within this range, with appropriate investment weightings, you could put together a fund portfolio with an average TER of <1%, thus somewhat competitive with the stakeholder/personal pension options. I’ve also filtered the results to include only accumulation funds, and to leave out any funds where the net initial charge is greater than 0.
My verdict? Given my filtering parameters the HL SIPP has about 60 investment options with which you could possibly put together a pension portfolio similar in overhead to good stakeholder or personal pensions. This typically has much more choice than a stakeholder, but less than many personals. However, it can be observed that the selection of investment choices mainly focus on local equities and bonds with a bit of money market thrown in. Notably this selection contains no property investment funds, which are generally considered an important part of a balanced portfolio (though how happy you’d be with that idea right at this moment is debatable!) I seems that the lowest TER property fund is the L&G General UK Property Trust with a TER of 1.29%, so if a small part of your portfolio it could be possible to include this and still average <1%.
Anyway, the list:
So, if you put a large weighting into the HSBC FTSE All-Share fund you could potentially bring down the average significantly (and several sources of advice do suggest having a sizable proportion of your portfolio in local equities, especially when 20+ years from retirement.)
I don’t know if all these funds are valid for investment in a SIPP, I do know that their minimum investment levels vary (some are 1000+.) This is, after all, a fairly rough assessment made by a total armature! It is also worth pointing out that several funds in HL’s index link to “fund not found” pages, I have no idea what’s up with that. Additionally, few of the funds are index based anyway, so for the majority the usual quality considerations for actively managed funds apply.
Finally, note I’m comparing an apple to oranges by taking into account just the parts of the apple that are orange-like. The important difference ignored here is that the HL SIPP allows equity investments with relatively cheap trading fees. If you want fully flexible trading within a SIPP then, from what I’ve heard, the HL SIPP is hard to beat. But my interest at the moment is comparing a SIPP to other options as purely a fund-container.
The above said, it should be noted that the HL SIPP’s trading capabilities can also have some relevance to holding funds! This is thanks to ETFs of course.
Complicated, no?
Based on this very, very rough consideration I think I’d prefer stakeholder or personal pensions over the HL SIPP if my investment focus was entirely on funds. I’d consider a strategy of beginning pension investments in one of these and holding that until it has a value high enough to consider the possibility of using a SIPP to provide access to ETFs. (Since HL’s dealing charges for larger transactions are reasonably good. That said, I haven’t got around to weighing up the pros and cons of ETFs in a SIPP wrapper. On the face of it you could invest in, for example, the iShares FTSE 250 ETF with its TER of 0.4% and only ever pay HL the initial trading fee. To have a better idea of this would require a survey of all the ETFs available.)
Disclaimer: this is not financial advice, I’m just thinking aloud (and am entirely unqualified to offer advice anyway!)
I have an IRA with with an online brokerage that does 10 trades a month free. I make 1 trade a month maximum (put money in, a buy something – I think I actually make 1 trade every 6 months…), so my fee level is simply whatever the ETFs charge (which varies, but is usually much better than mutual fund charges).
There doesn’t seem to be anything there isn’t an ETF for these days. I mean there are FTSE 250 style funds for every index imaginable, a whole stack of ultrashorts from proshares to double short various sectors/indexes, GLD and SLV for precious metals, there are even ETFs that hold bonds of various flavours.
I don’t think there’s an investment strategy you can’t do with just ETFs… Some counter party risk of course but mutual funds have that too.
I do like ETFs. In the case of a UK pension, if I could find a SIPP provider that provided some number of free trades like you have it’d simplify things. 🙂 Instead it seems that the best you can do is around 10 quid per trade up to 500 quid, 15 up to 2000, … etc. That isn’t too bad though, less than 1% up-front for trades above 1500.
http://www.h-l.co.uk/pensions_and_retirement/sipp_charges.hl
Might be better SIPP deals out there though.
So the UK is like Australia then… These things are cheaper over here (helped by the US dollar trying to get to a level resembling the Zimbabwe dollar).
Charles Schwab which is a 40 year old brokerage charges $12.95 a trade up to 1000 shares, then +1.5c per share – but US shares tend to be priced higher than most, just look at the ADRs, the BSY ADR on the NYSE has each “share” representing 4 actual BSY shares. So that 1000 share limit buys you the equivalent of £18,000 of BSY stock…
So less than £7 for every trade you’ll ever make (unless you are way richer than me 🙂 and they are the high end of the do-it-yourself-online services.
Maybe not so much like Australia in one way, you can’t run your own pension here. No equivalent exists to a self-managed superannuation fund. So, you don’t have the ability to pick the best discount broker on the market. You’re limited to the best discount broker who offers a SIPP wrapper, which is the closest you can get to self-managed (SIPP = “Self Invested”)
SIPPs are typically the most flexible UK pension offerings, at the low end they provide access to only fund “supermarkets,” usually with a small (100-200 quid) set-up fee and then the SIPP provider gets a take from the funds’ annual charges (the better ones rebate some of this charge, and all of the buy-in charge.) The middle tier gives access to equities as well, this includes Hargreaves Lansdown, who seem to have the cheapest product on the market. There is also an upper tier, this allows things like specific commercial property investment (can be nice if you’re a business owner) – but these ones still all come with hefty buy-in and annual fees.
I can’t find a SIPP wrapper for Charles Schwab’s foreign investor accounts. It might have existed back when they ran their own stuff over here, but they’ve sold that to a big local bank (Barclays) and its SIPP offering isn’t competitive.
If I was investing out of a pension wrapper Charles Schwab looks like a good pick. But given virtually unlimited annual pension investment here (over £200k) and the 100% tax rebate I think I’ll stick to pensions for the long-term money. (For £500-2000 the trade fee is ~2%-0.75%, but my tax rebate is 40% (20% to the pension, 20% to my pocket, insanely enough.) Typical ETFs have a TER of less than 1% per year, but typical funds have >1% – which is ongoing of course. Schwab’s trade fee would be 1.4%-0.35%, it’d be a winner if there was a SIPP wrapper!)
Here in the UK we also have “ISAs” which give a yearly per-person investment allowance of £7200, any income earned from this is untaxed (CGT included.) ISA investment is with post-tax money, but the bonus is you can actually withdraw from the pool any time (rather than having it locked away until you’re 65), so the ideal way to save that home deposit. Up to 3600 of ISA allowance can be in cash (i.e. good bank-rate interest), money above that (or all of it) can be in equities.
I meant with respect to brokerage pricing ignoring that all they do is send a packet up the wire…
The US is awful for retirement investments. IRAs are the equivalent of ISAs – except they can be pretax in some (if you have no other 401k type setup and earn less than some threshold) cases, and the limit is $5000 a year. And you can’t withdraw early without penalty.
And even things like SIMPLE IRAs and 401ks have limits of $10,500 and $15,500 a year.
It’s crazy that you can’t put your entire years income in an IRA post tax (so the government still gets their piece of flesh). They complain about social security about to blow up, but won’t let me make up for it myself.