Cheapest ways to invest with Neil Woodford

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Today is the last day that investors can buy into Woodford's new fund before trading begins. We find the cheapest ways to invest with the star fund manager.

Neil Woodford is widely acknowledged as one of the UK's star fund managers, if not the best money manager in Britain.

During his heyday at fund-management group Invesco Perpetual, Woodford managed at least £33 billion across several funds. What's more, Woodford's market-beating returns, year after year, attracted hundreds of thousands of British investors keen to benefit from his stock-picking skills.

Woodford has now set up his own venture, Woodford Investment Management, and the initial offer period for his latest fund (the CF Woodford Equity Income Fund) closes today.

This means that today is the final day that investors can buy into Woodford's fund at a fixed unit price of £1. From tomorrow, the fund will begin trading and will be priced daily, so if you want to climb aboard the Woodford bandwagon and pay only £1 per unit you need to get a move on!

How to back Woodford cheaply

If you want to invest with Woodford, where should you go to minimise your charges and other ongoing expenses? In essence, you have two options:

1. Invest directly with Woodford Investment Management; or

2. Invest via a fund platform, execution-only (discount) broker, or local or national IFA (independent financial adviser).

1. Going direct

Let's tackle direct investment first. If you have at least £150,000 going spare, then you can invest directly into this new fund via Woodford Investment Management. These buyers of 'A' shares will pay an annual management charge of 1%.

Woodford explains that this high minimum "keeps our fees low by encouraging investors to use fund platforms and financial intermediaries, rather than buying directly from us".

2. Using platforms and brokers

Given the height of this investment hurdle, the vast majority of us will be throwing our hard-earned cash at Woodford via platforms, discount brokers and IFAs.

In this scenario, investors buy either 'C' shares with an annual management charge (AMC) of 0.75%, or 'Z' shares with a specially negotiated AMC of just 0.65% for the big players.

However, your charges don't stop there, because platforms, brokers and IFAs add their own layer of charges on top. These vary so widely that it is extremely difficult to determine the best deal for any particular investor. Put simply: the more you invest, the lower the percentage impact of any fixed fees and, therefore, the less you pay in total.

The Woodford website lists nine platforms and 10 discount brokers that are supporting this fund launch, but even more exist. Therefore, to make it easier for you, I've crunched the numbers to find the cheapest routes for two different investors: the first with £10,000 to invest and the second with £100,000 available.

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£10,000 to invest

Here are the top-five cheapest routes to buy into Woodford's new fund for an investment of £10,000:

Provider

Yearly fees

Fees (percentage)

AXA Self Investor*

£75

0.75%

iWeb

£75

0.75%

Halifax Share Dealing

£87.50

0.875%

James Hay

£93

0.93%

AJ Bell

£95

0.95%



Source: Lang Cat

* includes special offer

As you can see, all five of these providers allow you to invest in Woodford with an ongoing AMC below 1% a year. The cheapest are AXA Self Investor and iWeb, both of which charge 0.75% a year on an investment of £10,000. Halifax, James Hay and AJ Bell charge between 0.875% and 0.95% a year.

£100,000 to invest

For investors with 10 times as much to entrust to Woodford, the charges come down a little at several providers. This is because of the economies of scale that come from accepting much larger sums. These are the top-five cheapest routes to back Woodford with £100,000:

Provider

Yearly fees

Fees (percentage)

AXA Self Investor*

£750

0.75%

iWeb

£750

0.75%

Halifax Share Dealing

£762.50

0.7625%

Alliance Trust Savings (ATS)

£825

0.825%

Interactive Investor (iii)

£830

0.83%


Source: Lang Cat

* includes special offer

Again, AXA Self Investor comes out on top, thanks to its 0% platform fee, but this special offer for 2015 tax-free ISAs ends on 31st July. iWeb levies the same fee on £100,000, with Halifax, ATS and iii charging between 0.7625% and 0.83% a year on £100,000+ of assets.

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Invest wisely

When investing in Woodford's new venture - and, indeed, any investment fund - you need to consider the big picture.

To see the true cost of charges on your investment, be sure to add any provider charges on top of ongoing fund fees. In some cases, this extra layer of charges can cost more than a fund's own fees.
What's more, if you have large sums to spare, then look to providers that charge flat, rather than percentage-based fees. In the long run, these will cost you less and make you richer!

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