14. Who will provide your ISA and how about charges?The choice can be bewildering with over 2,000 ISA different init trust and oeics (open-ended investment companies) products currently on the market. With mergers in the financial services industry, this choice is likely to be narrowed in future with a greater degree of specialisation.
Among the alternatives are:
Self-select ISAs , where the plan manager is usually a stockbroker. Here the choice of investments is yours and you do your own research. Costs are therefore low; Comdirect for instance will administrate your ISA for just £25 pa. flat fee. Full-service stockbrokers will also run your ISA for you on a discretionary basis, where you agree the objectives and the broker selects the investments. Fees here will be 5% or more.
Collective investment ISAs (unit or investment trusts, corporate bond funds, oeics, etc), where the ISA is offered by the fund provider. Costs here will be an initial charge of around 5%, although many companies offer savings to attract business, including even waiving the initial charge if a commitment is made to continue the ISA for some years. Ongoing charges are usually about 1-1.5% of the fund value. Additionally, units are bought at the offer price and realised at the bid price.
Accordingly, charges are heavy and the fund manager should offer substantial value in investing advantageously to offset them.
Discount brokers are not plan managers but offer to cut the charges by sharing their commission from the manager with you. However, although this allows you to set up the ISA at lower cost, there are still the ongoing annual charges levied by the plan manager.
Fund supermarkets are a development of the discount broker system. They will offer you a choice of many funds from different providers which means your ISA can be invested in a range of funds, which can be altered over time, with the supermarket administering the ISA on your behalf. Charges are lower than those of the collectives managers, with an initial charge as low as 1% and where the supermarket operates via an internet site, further savings can be made.
IFAs (independent financial advisors) will advise you personally for which you pay a fixed fee usually based on time. The IFA will normally rebate to you most or all of the commission they receive from the plan manager.
For Life Assurance ISAs, the choice is much narrower and probably the best products are provided by Friendly Societies.
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