Charge of the cut-price brigade
UNIT AND INVESTMENT TRUSTS
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Your support makes all the difference.Hill Samuel last week became the latest fund manager to launch a new savings plan, a minimum pounds 25-a-month investment in its UK Emerging Companies Trust.
Savings plans were developed in the 1980s as one of the first stages in a revolution that has transformed investment trusts from specialist funds into popular investment products.
They highlight the big difference between unit trusts and investment trusts. Put money into a unit trust and you are buying a product, the units, that the fund manager has manufactured. Put money into an investment trust and you are buying shares in the company.
But of course companies cannot advertise their shares, except in the prospectus issued at the time of flotation. So how does an investment trust advertise? By setting up a savings plan. This is, in effect, a savings account that pools all the savers' contributions and is used to buy the shares. So it can quite properly advertise and promote itself.
Savings plans are one of the most fiercely competitive areas of the fund management business. Offered by most of the big fund management groups, they attracted some pounds 186m in the first nine months of this year. The next battle will be over charges.
As with pension and life assurance products, charges vary widely. The main element is an annual charge, which normally varies from 0.2 per cent on large funds to 1.5 per cent on some of the smaller, more specialist funds. But many funds also have initial charges and some impose other charges such as brokerage fees on the sale of shares. Together these can have a disproportionate effect on the performance of your investment, particularly in the early years. Unless you read the small print it may not be clear how much your investment is worth.
Hill Samuel's plan has an initial charge of 0.75 per cent and an annual management charge of just pounds 10, which is highly competitive.
The announcement was accompanied by a hard-hitting attack on the pricing structures of some competitors, which were described by David Sachon, the business development director, as "clouded with complexity".
Mr Sachon denied he was looking for a price war (the need, he said, was for understandable pricing). But Hill Samuel is one of the top 10 UK fund managers and part of Lloyds TSB, which is the country's largest financial institution. All of which means it has real clout.
In fact, recent months have seen moves towards lower charges from fund managers. Abtrust, for example, recently extended its savings plan (minimum pounds 50 a month) to cover 17 investment trusts, with no initial charges and an annual management charge of 0.5 per cent.
This is bound to be good news for savers.
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