ETFs & Investment Trusts : Costs and Charges

Freetrade’s additional of Costs and Charges data seems to have cast light on the thorny issue of investment fees.

What’s Evarvest’s solution going to look like?

I can’t help but think this sort of disclosure is a blessing and a curse as the datapoints are a consistently moving target and every platform will quote you a slightly different metric for exactly the same asset. So who am I to believe?

For what it’s worth I’m using a simple data feed provided for free by the curiously named Finki

The new Freetrade Costs and Charges data point allowed me to extract all Freetrade quoted costs into a Google sheet and notice that even the mighty Freetrade struggle with this! Some costs are blank. Some costs are 0% when that clearly can not be the case.

Would love to know how Evarvest are going to handle this.

Thanks in advance for any response from the Evarvest team!

ps Please launch soon… I’m tired of the limited Freetrade stock list !!! I need more !!!

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@DataNerd thanks for sharing! And really good to hear you’re excited for our launch :grinning: there’ll be lots of stocks to choose from and there will be even more once we enable access to the other stock exchanges around the globe we already have access to! 9,626 choices is just the start :ok_hand:

The problem you’ve shared is a real concern and has been since mid last year - in particular the FCA published a ‘call for input’ to better understand the problems/experience of the PRIIPs Regulation.

Personally, I think PRIIPs Regulation has been needed to bring more transparency to investment products. It would be even better if there was more education around this.

It’s great to require firms to disclose fees associated with packaged investment products but unless you understand what this means and how it affects your investments, it still isn’t helping retail investors make wiser decisions on their wealth creation.

So others reading this topic are up to speed, from 1 January 2018 the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs Regulation) came into force to help improve the disclosure requirements on packaged investment products like ETFs.

As a simple explanation, few investors know that ETFs have internal fees. Often investment returns are diluted because an investor is being charged brokerage, and in some cases advice fees, management fees etc from their financial advisor or stock broker, and not realising that the ETF they’re investing into are also charging fees for managing the ETF.

This is a big problem, particularly with pension funds - it’s a huge driver for why we’re keen to expand our app into reforming the pension space, so people’s retirement savings are increasing and not decreasing because of multiple fees on multiple products coupled with limited transparency and education.

Here’s a screenshot from JP Morgan Asset Management that details the fees you’ll often have when buying packaged investments, like ETFs.

The new regulation requires us and other brokerages, investment firms etc to provide you with a pre-contractual (prior to buying the stock) Key Investor Information Document (KIID) which details all the fees. Costs of the packaged investment product also need to be reported/disclosed to investors on an annual basis.

One of the key problem here, which the regulators are aware of, is the concerns about using the ‘slippage methodology’ in calculating transaction costs.

Slippage is the difference between the price when a trade is ordered (executed via your broking platform) and the ‘arrival price’ (the price of the share when the order arrives at the stock exchange and is placed into the market).

To add an another price to the mix. Once your order has arrived at the stock exchange and placed into the market, you then have the trade execution price (the price you actually bought the share or ETF for).

As a super simple explanation, when you’re on our app (post launch) once you’ve hit confirm to buy a stock or ETF, this means the trade has been ordered. Then with API calls and great internet speed, your purchase order arrives at the stock exchange to be executed within milliseconds. During this time the stock or ETF price can fluctuate, this is the same with fund managers executing orders within ETFs.

With transaction reporting, the main problem is a lot of funds, like ETFs, use the arrival price, which is the PRIIPs Regulation method, and not the execution price.

We’re already working on adding in the required KIIDs, ensuring we’re compliant before our launch. More than this, we’re already working on adding information about this to our educational library so investors know exactly what this means and how it affects them.

We have a couple of things we’re working on behind the scenes to add to our roadmap relating to KIIDs, such as, adding in an information button to each ETF page within the app so investors can better understand what a KIID is and how it affects them - in case they haven’t read the information in ‘The Library’ yet. :nerd_face:

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