Don't get stung by nasty ISA fees

Updated: 
There's a nasty nip for investors who commit their hard earned ISA cash to certain investment trusts. Investment trusts traditionally have a reputation for low charges compared to their near half-sibling, unit trusts.

However a new investigation has discovered that some trusts, including several well-respected operators, are quietly amping up charges.

Investments with bite

Are investment trusts still worth a look? Broadly, yes, but it does depend on what you buy into. For example, a new Telegraph investigation found several high-profile funds were imposing extra admin fees - Witan Trust's £30 fee is an example - on top of existing annual management fees.

Once an investment trust manager charges a fee for an 'ISA wrapper' – of up to 1% – then the total costs, compared with unit trusts, don't look so competitive the Telegraph claims. Bear in mind that many unit trust fund annual fees, in comparison, can still exceed 1.5%. The fee gap though is narrowing.

Part of the reason why new investment trust charges are being introduced is because of increased outsourcing to much bigger third parties, limiting the chance to buy direct from a fund manager. Also, the Retail Distribution Review - it came into force at the start of the year - saw the end of many commission-related investments, putting more emphasis on fee-based investments instead.

Commission pressure

Some investment trusts have resisted the extra charge trend - so far. These names include Martin Currie, Barings and Fidelity. (Indeed, a fund like Martin Currie's Securities Trust of Scotland charges just 0.3% a year and has soared more than +65% in the last three years.)

However investment trusts remain, for the majority of retail investors, a minority preference, not helped by financial advisers historically teering their clients towards unit trusts thanks to fatter fees. So some trusts are unlikely to face too much pressure from retail investors to keep fees at previous low levels.

Last year Winterflood Securities compared charges between investment trust and unit trust funds and found that investment trusts remained cheaper 62% of the time while unit trusts tended to be cheaper 23% of the time.

Tax tricks to improve your wealth

Tax tricks to improve your wealth

SPONSORED FINANCIAL CONTENT