A new online investment service has launched that discounts 100% of the commission payable on investment funds for those looking to invest their money without any advice.
Commfreefunds.com has abolished all initial commission on investments, usually between 3% and 5% and will rebate any annual commission, usually 0.5%, back to investors. Investors must pay an annual subscription fee of £60 to use the service.
What investments are available through commfreefunds.com?
The investment platform has teamed with fund supermarket Cofunds to offer investors access to over 1,300 investment funds from 90 different asset managers.
All the investment funds are unit trusts and open ended investment companies (OEICs), collective investment schemes that pool all of your money with other investors, run by expert fund managers on your behalf. They can be invested through a tax efficient stocks and shares ISA.
Why do you pay commission on investment funds?
When you first place your money into an investment fund, you typically face two different charges. The first is the initial commission of around 3% to 5%, which is paid to a financial adviser out of the total amount of money you want to invest. This means that if you have £10,000 to invest, only £9,500 would actually go into the investment fund, with £500 going to an adviser.
The second charge is the annual management charge, which, on average, is around 1.5%. This consists of the fee paid to the manager of the fund, administration and marketing costs and an annual ‘trail’ commission of 0.5% paid to the financial adviser.
Investing through a service like commfreefunds.com means that you won’t pay any of the upfront charges and the annual commission is rebated. This means that the actual annual fee you pay will be much lower.
What is the impact of charges on an investment?
Which? has recently carried out some extensive research into the impact of charges over time on your investments. We found that if you invested £100 for 20 years and it grew by 5% annually, you could save almost £4,000 by investing through a discount broker or fund supermarket.
However, this kind of service should only be used by sophisticated investors who have the confidence and knowledge to make investment decisions on their own. If you are unsure of how to invest, you should always seek out independent financial advice.
How does commfreefunds.com compare with other services?
There are only a few other services that have a similar offer to commfreefunds.com. In a recent study of discount brokers and fund supermarkets, we only found one broker able to offer 100% discounts on every fund on offer.
Cavendish Online offers access to over 1,200 funds with no initial or annual commission payable on any of the investment funds. It charges a one-off fee of £25 per investment, which is capped at £100. Therefore, if you were to invest in five investment funds, you would only pay £100 instead of £125 pounds as a one off fee.
The difference with commfreefunds.com is that you pay a £60 annual fee. Therefore, for the service to be cost-effective, you would need to have at least £12,000 to invest (so that the 0.5% annual commission rebate breaks even).
It is important to stress that you should only use these services if you are comfortable making your own investment decisions. If you want money advice or want to know how to find a financial adviser, read the Which? online guide Choosing a financial adviser. Which? and Which? Money members also have free access to the Which? Money Helpline (telephone number in your latest magazine).
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