All actively-managed funds carry an Annual Management Charge (AMC) – this is a percentage that’s deducted from your investment returns every year. The charge is automatically reflected in the fund’s price, so you may not even notice it.
Almost all companies you buy your funds from will keep a substantial share of this charge.
For most funds the annual charge is 1.5%, which is allocated as follows:
- 0.75% goes to the fund manager – for managing the fund
- 0.5% is paid as commission to IFAs (independent financial advisers) or to the provider who sells you the fund. This is widely known as trail commission.
- 0.25% is paid as a fee to the fund platform (eg Cofunds). Fund platforms act as the intermediary between advisers/execution-only brokers and the fund managers.
In some cases the provider who sells you the fund also runs their own fund platform, in which case they keep the platform fee. This means they will keep approximately half of the overall annual management charge.
Where a provider uses an external fund platform, the platform fee may be split. Cofunds is Interactive Investor’s fund platform provider.
How do fund rebates work?
Some companies rebate some of their share of this charge – giving you a fund rebate. However, this is unlikely to be a rebate of all the income and commission they earn on your funds.
Interactive Investor is different. We give you back:
- 100% of the trail commission we’re allocated from your fund’s AMC
- 100% of our share of the fund platform fee we’re allocated from your fund’s AMC
On average, with Interactive Investor, of the 1.5% average AMC, you will receive 0.64% back from us. This will be rebated to you every year you hold your fund investment with us.
This amount can make a significant impact on your returns.
If your fund returns 3%, you’d get 3.64% invested with us (an increase of over 20%).
By reinvesting every year, the compound effect of that extra share can make a huge difference to how much growth or income you make
How much difference does it make?
The example below shows how much more you could make on one of the UK’s most popular funds, Invesco Perpetual High Income Fund:
|Provider||Annual Rebate||Quarterly Charge / Inactivity Fee||Net rebate (over 10 years)*|
|Interactive Investor||0.64%||£20 (equivalent commission credit)||£3,491|
|Alliance Trust Savings||0.50%||£10+VAT per account||£2,739|
|TD Direct Investing||0.50%||0.35% Platform fee||£825|
|Selftrade||0.00%||£8.75 + VAT ||£0|
*If you invest £10,000 into this fund every year, for ten years, you would be £3,491 better off with Interactive Investor against Fidelity and Selftrade and over £2,000 better off versus HL or Bestinvest.
The calculations above are based on the actual amount invested, every year, net of fees. For Interactive Investor the net amount is £9,920. For Alliance Trust the net amount is £9,960.
How much difference does your choice of provider make?
The difference between the amount of fund rebates from different providers can be enormous – and can make a significant impact on your fund returns.
As just one illustration of this, the following example shows the difference in what your SIPP portfolio would be worth if you invested though Interactive Investor rather than with a provider who pays you no rebate:
|Interactive Investor||Provider paying no rebate||Difference|
|Year 1||£ 105,987.16||Year 1||£ 105,500.00||£ 487.16|
|Year 5||£ 133,844.64||Year 5||£ 130,696.00||£ 3,148.64|
|Year 10||£ 179,436.28||Year 10||£ 170,814.45||£ 8,621.83|
|Year 15||£ 240,852.16||Year 15||£ 223,247.65||£ 17,604.51|
|Year 20||£ 323,584.65||Year 20||£ 291,775.75||£ 31,808.90|
|Figures are based on an initial investment of £100,000 into a SIPP with a gross yield of 7% and a net yield of 5.5% after deduction of 1.5% AMC. It assumes an average rebate of 0.64% for Interactive Investor versus a provider who pays no rebate. Pricing is subject to change. In the example above the fund and any income received is reinvested. The Interactive Investor return is net of the £120 + VAT annual Interactive Investor SIPP fee.|
Why invest with Interactive Investor?
In a climate of changing regulations and uncertain markets we think it’s important to know how much your investments are costing you. We’ve never liked hidden charges and believe our pricing ensures you know exactly what you pay for every investment, whatever the investment type.
At Interactive Investor, unlike other providers, we not only give you back all of the trail commission we earn, but we also give you back our share of the platform fee we receive. We give all of our share back to you (our rebate is paid into your trading account, every quarter).
Investment and trading involves risk. Please ensure you understand these fully before you trade. The value of shares can fall as well as rise and you may not get back the full amount of your investment.