Costs of investing
There are costs associated with investing. It’s important to keep these in mind when planning to buy or sell investments, or calculating returns.
If you buy or sell shares, you’ll pay commission. This is the stockbroker’s fee and covers the cost of carrying out the deal. It includes stock exchange fees and settlement charges.
Commission can be charged as a flat fee on every deal, and usually the more deals you place, the lower your fees.
Sometimes commission is charged as a percentage of the total deal value. This will likely depend on:
- The size of the deal – in general, the larger the trade, the lower percentage you’ll pay.
- How you place the deal – you’ll usually pay more if you deal by phone and less if you deal online.
It’s also worth remembering that funds and other types of collective investments may incur these charges too, each time they change the investments they hold. Many brokers will now apply a percentage charge to the value of the funds you hold and not apply any charges when you buy or sell.
Although fund managers will generally pay lower dealing charges when trading the assets that make up their funds than individual investors pay, these costs of doing business are normally passed on to investors. These are often in addition to the Annual Management Charge (AMC) that fund managers levy and may not be included in the OCF (Ongoing Charges Figure) given on the fund’s Key Investor Information Document (KIID).
If you buy UK shares, you’ll need to pay Stamp Duty. The current rate of stamp duty reserve tax is 0.5% of the amount you paid for the shares although this could change in the future. There’s no charge for selling shares.
When you buy shares, funds and many other types of investments, the bid price is the price you can sell at. The offer price is the lowest price you can buy at. The difference between them is called the bid/offer spread. When buying a fund the published offer price includes the maximum Initial Charge the fund manager may apply; if they waive this charge you will buy at a lower price than published.
Suppose the bid price is £20 and the offer price is £21 – the bid/offer spread is £1. This isn’t an extra charge, it’s included in the share price you’re offered. In the case of shares, it is the Retail Service Provider (RSP) who receives this income. RSPs are the firms which create a market, sitting between buyers and sellers. So they’re sometimes called ‘market makers’.
For funds the spread between the offer price includes any charges; the spread between the bid price and the buying price without any Initial Charge reflects the different value of the underlying assets making up the fund, depending on whether they are being bought or sold.
At any point in time, there can be a range of different prices offered on the market for the same shares as each market maker will have its own prices. The price of a fund is always based on the value of the underlying assets which make up the fund unit or share, though buying prices may include charges. Many funds now only quote a single price which excludes any charges which would be applied on top. The price of a fund is normally worked out once a day.
Getting you the best price
When you invest with us, we request a price from as many different Retail Service Providers (RSPs) or ‘marketmakers’ as possible. This is done instantly through Barclays Stockbrokers Price Improver®. So, every time you buy or sell, you’re getting the best price available from our RSPs every time you invest.
Fund initial charges
When you invest in funds, you may have to pay an initial charge to the Fund Manager. This can be up to 5.5% of the total amount you’re investing and is taken off the money you pay in.
To save you paying this up-front fee, we have negotiated with Fund Managers to have it removed from more than 2,000 funds available on our Funds Market.
Annual Management Charge (AMC)
This is charged by the Fund Manager to pay for their services in managing the investment. In the past Fund Managers generally charged 1.5% each year. Fund Managers normally passed on a proportion of this charge as 'trail commission' to brokers and intermediaries who administer clients' fund investments, for services such as distribution, advice and administration. Since April 2014 regulations require that trail commission can no longer be charged on new fund purchases and from April 2016 all trail commission ceases.
We only offer the ‘clean’ version of a fund for new purchases, and where possible we have already converted most existing holdings to clean units too. These pay no trail commission to intermediaries and make exactly the same investments but have a lower AMC from which the Fund Manager will not pay out any trail commission. On these new cheaper share classes you instead pay us a Fund Administration Fee calculated on the value of your holdings. Even though you pay two charges, the cost of investing in funds has on average fallen by 25% as a result. These changes have resulted in lower fees for most Barclays Stockbrokers funds investors, although if your fund holdings total less than £4,000 you may pay more than you would have previously.
Ongoing Charges Figure (OCF)
The OCF is a more complete indication of the charges incurred in running the fund. In addition to the AMC, it includes things like administration and legal costs but excludes the costs of transactions in the assets the fund invests in. It’s usually a percentage of the amount you’re investing. These charges are deducted from the value of the fund by the fund manager and not payable by you separately.
As said before, in 2014 the Financial Conduct Authority (FCA) introduced changes to the way you pay for the administration of fund investments. The aim was to make sure you know exactly what you’re paying, to whom and how.
You now pay separate charges to the Fund Manager and to us for administering your investment known as the Fund Administration Fee.