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Guide To Hidden Charges in Investment Products

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Most people are aware of the potential pitfalls when investing money, and these days, they’re especially aware of the risk of investment mis-selling. Poor advice, lack of risk assessment and reluctance to offer a full range of products are common issues, and all are grounds to make a claim.

There’s one more issue that affects investors across the UK – hidden charges. Bank advisers can make it difficult to know exactly what charges you’ll be paying on your product, which can mean the investment as a whole isn’t as attractive as initially thought.

To help you avoid being caught out, we’ve put together a list of the more common hidden charges you might not be made aware of straight away.

Common Hidden Charges in Investment Products

  1. Platform charges. If you choose to invest funds through an investment platform (sometimes called a ‘fund supermarket’) then you’re likely to be charged. Investment platforms don’t provide you with advice on which product you should invest in, but enable you to purchase different investments from the same company. But be warned: you will be charged. Costs vary depending on the platform you use, but are generally around 0.25% per annum.
  2. VAT. It’s easy to forget VAT when choosing an investment product, and the quote your investment manager provides you with for their annual management services may not include it. Remember to ask – and if VAT isn’t included, add on 20%.
  3. Set-up fees. Many investment products will incur some sort of initial fee to cover costs of setting up. Again, costs vary depending on the product and company you invest with. In the past, set-up fees have been as high as £950 upfront (HSBC) or 3% of the total investment (Nationwide Building Society).
  4. Exit charges. When committing to buy a product, make sure you ask how much it will cost should you decide to cancel your investment. Some financial institutions charge a surprisingly high amount if you want to switch to another company.
  5. Advice charges. Some banks will charge you for their advice should you choose to invest in a new plan. Others include advice as part of their ongoing fees. Make sure you find out whether advice is included when you speak to an investment adviser.

Do Hidden Charges Constitute Investment Mis-Selling?

Since the Financial Conduct Authority clearly states that any financial contract is regarded as unfair if it binds you to hidden terms, your adviser has a responsibility to ensure that you understand all costs involved.

Gina Miller, a wealth manager at SCM Private, recently led a campaign encouraging financial organisations to be more open about the real costs of investment.

“Confusion about charges on investment funds and pensions has left most investors in the dark about how much they are paying,” she stated. “This has suited the UK industry, which has benefited from charges that are among the highest in the world, but a decade of low returns has started to focus people’s attention on fees.”

If you’ve bought an investment product but weren’t made fully aware of the costs involved, then you have potential cause to make a complaint.

1] https://www.moneyadviceservice.org.uk/en/articles/understanding-investment-fees

2] http://www.telegraph.co.uk/finance/personalfinance/investing/9793587/Banks-New-fees-revealed-for-cost-of-investment-advice.html

3] http://www.ft.com/cms/s/0/a96951e8-e25a-11e2-87ec-00144feabdc0.html#axzz3ub4wG95o

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