Almost one third (32 per cent) of investors don’t realise that they are paying administrative fees, according to research.
Alliance Trust Savings carried out a survey which suggested awareness is particularly low among the over-45s, with 42 per cent of investors wrongly believing that they do not pay admin charges.
Among those who do believe they pay for admin, 71 per cent did not know how much it was. Again, this figure was highest among investors aged 45 and over, with 79 per cent admitting that they were not aware of the cost of their investment.
There was also confusion over the type of fee being paid, with only 34 per cent able to state whether they were paying a flat fee or a percentage fee on their investment.
“Fees can make a huge difference to the value of an investment pot over time,” said Sara Wilson, head of platform proposition at Alliance Trust Savings.
“Whether you pay flat fees or percentage fees for your platform administration can also impact your investment returns.
“Many platforms charge a percentage fee, meaning higher value accounts pay more, and effectively subsidise the costs of those with smaller account values even though it does not cost ten times as much to service a £500,000 ISA as it does to service a £50,000 one.
"For people with larger accounts, flat fees can offer excellent value and make a big difference to what you could get back over the longer term.”
However, one adviser pointed out that fees can range considerably across different types of investments, and warned that clients need to be made particularly aware of the hidden charges associated with Self-invested personal pensions.
“Sipp charges don’t tend to be like pension funds or Isas where they are a set percentage,” said David Bishop, a financial consultant at Sydney Johnston Financial Services.
“With Sipps there tends to be a charge for the set-up which is not related to the amount that the client is putting in.
"Some providers charge different amounts for putting different types of investments into their Sipp, and these can range considerably. As well as the initial fees there are also annual fees which come into play, and when the client wants to convert their SIPP into drawdown funds there are transfer-to-drawdown charges.
“There is a lot of disparity among charges and it does mean that these investments require a lot of in depth research.
“When it comes to making the client aware of these charges we would tabulate the charges for each provider that we’ve called and then show the client a projected cost for running it over five years, ten years, or twenty years.”
