Finance Matters Insights
Investment Fees Explained: Platform Fees, Fund Charges and Their Long-Term Impact
Happy Monday,
In the spirit of helping you understand your investments, it might be worth addressing how much your investments are costing you.
If you are a beginner investor, it's likely you haven't even thought about it. However, as your investments grow and you grow as an investor, you may start to notice the impact of your chosen platforms.
💡 What are you actually paying for?
The two main charges most investors will come across are a platform fee and a fund fee.
The platform fee is what your provider charges for holding and administering your investments. It may be a percentage of your portfolio or a fixed amount.
The fund fee is what you pay for the fund itself to be managed. You may see this referred to as an ongoing charges figure or OCF.
Importantly, these are not always the same charge.
If your platform charges 0.25% and the fund you select has an ongoing charge of 0.20%, you may be paying both.
There may also be charges for buying or selling certain investments, particularly shares priced in another currency. This is why “commission-free” investing does not necessarily mean investing without any costs. It may simply mean the platform does not charge you to place the trade.
📊 The actual impact
To put things into perspective, let’s say you start with £10,000, invest £300 each month and receive an average annual return of 7% before fees.
Your portfolio could look a little like this:
- With a 0.25% fee: £70,800 after 10 years, £190,000 after 20 years and £423,800 after 30 years.
- With a 0.75% fee: £68,500 after 10 years, £177,600 after 20 years and £381,100 after 30 years.
- With a 1.50% fee: £65,200 after 10 years, £160,700 after 20 years and £326,000 after 30 years.
The contributions and investment return are exactly the same. The only difference is the fee, yet after 30 years, it creates a gap of almost £98,000.
That does not mean £98,000 was paid directly in charges. The difference also includes the growth those fees could have generated if the money had remained invested. It is compounding working in the opposite direction.
These figures are illustrative and investment returns are never guaranteed, but they show why a small annual charge can become far more significant over time.
🗒️ Where to check your fees
You do not need to calculate every charge yourself, but you should know where to find them.
Check your platform’s pricing page, the factsheet for any funds you hold and your annual costs and charges statement.
Look for whether your platform charges a percentage or a fixed amount, whether you are paying a separate fund fee and whether additional charges apply when you buy, sell or exchange currencies.
It is also worth checking again as your portfolio grows. A charging structure that suited you when you started investing may not remain as competitive forever.
📌 What it means for your portfolio
It can feel like a relatively small detail within your wider investment research, but it is worth understanding nonetheless.
Last week, I shared some detail on how to actually read an investment:
-
As ever, with investing your capital is at risk so please be sure to do your own research.
F
Fisayo Martins
Founder at Finance Matters UK
Never miss an insight
SUBSCRIBE FREE
Join the Insider List for newsletters straight to your inbox, plus exclusive event access and member discounts.
