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Small Fees Make the Biggest Difference

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Many people make the mistake of thinking a small fee difference of 1% doesn’t matter — but in the long run, it can have a huge negative impact on returns, thanks to the magical powers of compounding which Albert Einstein described as one of the most powerful forces in the universe.

In investments, compounding is what happens when the money you put away grows, and that increased profit is reinvested to earn more. But the same can happen with fees. If you pay high fees, year after year, the end total can eat up a huge portion of your investment pie.


Total Cost of Investing the Iceberg Effect


Although many experts agree high fees are the biggest eroder of returns, the UK investment industry still gets away with only giving investors part of the picture. This shameful situation is often referred to as an iceberg where investors are shown just the fees above the surface, not the much larger, destructive layers beneath the surface.

SCM was the first company to publish ALL fees, at all levels, in one True and Fair Total Cost of Investing number. We make sure our clients know exactly what they are paying.

More information about the lack of transparency and high fees in the UK fund management industry can be found at www.trueandfaircampaign.com.

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0.48 per annum scm annual management fee 0.4% + vat
0.12 per annum Administration & Custody Fee
0.28 per annum Typical underlying ETF charges
0.09 per annum Estimated trading costs of buying and selling ETFs
0.08 per annum Estimated transaction costs within the ETFs
1.05 per annum total cost of investing

No performance fees, no adviser charges, no initial charges and no exit penalties.

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Fees will vary according to the current selection of ETFs and current levels of trading activity, latest fees shown in all monthly factsheets. The figures above are based on the average fees and charges, weighted by the amount invested within each of the SCM GBP Portfolios as at 31st December 2017. When investing via the Hubwise SIPP, an additional charge is made of 0.1%+VAT subject to a minimum annual charge of £15+VAT and a maximum annual charge of £50+VAT. An additional fee of £125 +VAT applies to any SIPP that is in drawdown. Other fees for work in relation to for commercial property, divorce & death for example are available on request and will be quoted to you before any work is carried out.

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How SCM Direct Compares

The average total fees when investing with large traditional wealth managers and adviser firms is c. 2.21% per annum. But if you add the average hidden transaction costs of c. 0.5% per annum, the average true Total Cost of Investing is c. 2.71% per annum.

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This compares with an SCM Direct average cost of circa 1.05% per annum (see our monthly factsheets for latest charges). The end result, from what appears to be a small 1.66% per annum difference can be dramatic as over the medium to long-term, the effect can be extreme due to compounding.

 If you invested two £100,000 pots over 5 years with two different companies — one charging 1.05% per annum and one charging 2.71% per annum, and both grow at 4.5% p.a. before costs; the pot with the low-cost fund manager would have a profit of £18,212 but the other pot would have just a profit of £8,623.

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Modern Efficient Fund of Funds via Low Cost ETF Portfolios

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SCM Direct operates a hybrid ‘actively passive’ investment strategy but manages costs and risk by investing in low-cost instruments, Exchange Traded Funds — known as ETFs

The difference between the buying and selling price of an ETF can be very low, particularly for large and liquid indexes e.g. the FTSE 100 or S&P 500.

We are 100% transparent and publish all the costs including the latest estimated transaction costs on a monthly basis for our GBP portfolios via our Monthly Factsheets

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