SIPP fee comparison inaccurate

When you deposit money with AJ Bell, it is just that, a deposit. There is no special fee deposit. AJ Bell take the fees from the cash sitting in your account. I was making the point that one could contribute extra to cover the fees if one was concerned about losing out on any gains as the fees will be taken from what you’ve deposited (or, the dividends that are paid out over the year).

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I get that.

I made the distinction on purpose. As if looking at a budget with two entries which sum makes a total.

There is no special fee deposit. I simply account for the total deposit amount. And then state that one part of it will be used to cover the fee expense, and the other part will be the amount to be invested.

Both parts of the whole amount, and therefore the whole amount, will be receiving the government’s contribution.

Is it like this?

And if it is like this, isn’t there a ceiling on the amounts someone can deposit? And if there is, isn’t there a point when it’s no longer possible to get the government to pay part of the fee expense?

Unless you hit the annual allowance of £40,000 (which includes the HMRC contribution), the whole amount receives the government contribution.

I think I get your point.

But it seems there’s a trade-off as others mentioned related to performance.

It seems that it’s a question of choosing between an increase in government contributions or between a higher investable amount. Or isn’t it higher?

And you seem to prefer the former rather than the latter.

Edit: I’m agnostic at this point.

If the fee is taken from the money you funded the SIPP with, you are effectively getting tax relief on the fee?

Unless you are hitting the annual allowance, in the scenario where the fee is taken from the SIPP account, you will have at least an extra £60 (eventually) that you can use to fund your SIPP/purchase shares with.

Let’s say I’m a higher rate tax payer, and all I can afford to contribute to fund my SIPP AND pay my SIPP fees is £10,000.
In the FT scenario, I deposit £9880 into the SIPP and I leave £120 in the bank to pay the fees. HMRC eventually add £2,470 to the SIPP. I have £12,350 I use to purchase shares with.
In the AJ Bell scenario I deposit all £10,000. HMRC (eventually) add £2,500 to the SIPP. I have £12,380 I use to purchase shares with (because I need to leave £120 for the fees).

In the AJ Bell scenario, I have all of £30 more to purchase shares with.

Once I submit my self-assessment, HMRC will (eventually) pay me back £2470 in the FT scenario and £2500 in the AJ Bell scenario. Wohoo, I have £30 more which I could now deposit into the SIPP, so I’ve ended up with £60 more to purchase shares for. Actually more than that, because the £30 I’ve now deposited will result in £7.50 being deposited by HMRC. (although in the AJ Bell scenario I will have had to pay £10 trading fee each time I purchased or sold shares).
Or put differently, as long as I trade less than 7 times a year, AJ Bell is cheaper than FT.

It is late, so who knows, there may be something here I haven’t thought through, but I think I’m right in the above. I’ve used the tax calculator I linked to above to work out the numbers.

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Appreciate it. Specially for not forgetting to mention the trading fees in the comparison.

Have you considered put this up as an idea to be voted by the community? Maybe if there’s more people who share this view and gladly cast their vote to support it you’ll get the option

Tell me about it. Got to be up by 6

Nice chat. Thanks

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How many trades have you been placing per year? Are you happy placing a trade every (almost) two months only? How do you manage your portfolio: active or passive approach?

Assuming it’s not possible to have the best of both worlds what option provides more value for your needs? AJ Bell or Freetrade?

That’s my thinking - you aren’t alone.

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Now that you put it like that I can see the benefit.

I think where people may have misunderstood is if you were to contribute the same 10k amount to FT Vs AJ bell then it would essentially be the same.

In your example you have taken the fee from your FT contribution before it’s placed in the SIPP which is probably what’s been causing the confusion

Hi, I see what you’re getting at now. I hadn’t considered setting an absolute limit for a lump sum once a year to include fees and then trading less than 7 times in that year, less if it’s a non-sterling investment.

Does seem pretty niche and an effort to keep track of, but you are correct in this scenario.

Not sure what I’ve done over several years, but interestingly I can see that in the last 12 months I’ve had 6 transactions in my SIPP. 3 of them were in January and were sales of badly performing shares.
But my SIPP is only one of several share accounts I have.
There’s an ISA (with iWeb)
A workplace pension (I intend to semi-regularly transfer what has accumulated there into my SIPP)
A Danish equivalent of a SIPP (I put money into that when I lived there)
2 US E*Trade accounts, one for ESPP shares from the company I work for, and another with US shares that I started trading on last century.
And then there’s a small share holding in my Revolut account. I didn’t really intend to use Revolut for shares, but when the market crashed back in March, it was the quickest place to fund to buy some US shares.

I’m pretty much a buy-and-hold investor. I want to consolidate some of the accounts I’ve accumulated. I was hoping FT could be the place I could do that, but I’m not so sure. There are a few aspects of FT that makes it seem like an offering that isn’t quite mature yet.

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The question was intended to the SIPP only, though I didn’t specify in the formulation. Thanks for sharing

I’m sure you’re aware Freetrade is a startup.The new kid on the block so to speak. They’ve been improving with additions of features, investments and products. Like the SIPP for instance, a product that just launched, and I would classify the SIPP as it stands today as a MVP. It will get better with time I believe, judging by what happened in the recent past with other features and products. So, I’m not surprised you may feel it’s not mature. I don’t think it’s mature either. It’s a startup, and we are starting to see it scaling up. And we are seeing it experiencing some pains due to growing numbers of users. Which is good I think, for it means it’s growing towards becoming an established service provider.

But I’m probably biased. I do think it’s the best option for me all things considered. I don’t think there will ever be a perfect offering in the market, like all things in life. Some service providers are more suited than others depending on the personal circumstances of each individual.

Services like iWeb, AJ Bell, Hargreaves Lansdown and others make a large percentage dent in my small pot. I have a LISA with HL and I place 1 to 2 orders per year. I would prefer to place a buy order every month but that would mean circa 10% of my pot lost for trading fees. I’m glad Freetrade showed up cuz allow me to invest with low costs.

Then there are fx fees. Freetrade charges 45 basis points on top of the spot rate. The tiered offer from AJ Bell is only better with trades above 30K if I understand correctly. HL charge 1% in fx rates. iWeb shows a fx fee of 1.5% (ouch!). My ability to make calculations it’s not the best, but this is something worth considering. In this regard FT appears to be the best offering unless one is placing 30k plus orders with AJ Bell. Would that suffice to offset the smaller government contribution?

The incumbents have some aspects I prefer when comparing with Freetrade. HL presents you with a 15 seconds window quote. All of them provide access to a wider range of investments and markets but that is changing on a regular basis. I don’t recall the exact number, but one year ago you could buy maybe 1000 (this number is likely inaccurate) stocks and ETFs. Today the options are north of 4000. The expansion to continental Europe as a service provider and the inclusion of continental Europe stocks are a work in progress. Just around the corner.

Your circumstances may differ from mine. I feel you give serious consideration to Freetrade. After all you took the trouble to compare some of the costs in your search for the best option for you. I’m sure you’ll decide for the one that suits you best

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Probably the most ridiculous thread I’ve ever read. Every situation will have nuances. But it’s stupid to say you get more in AJ Bell because that money is being used to pay the fee as opposed to invest in more shares or funds then there’s an opportunity cost there anyway. Makes more sense to pay outside your SIPP to make sure all gains within the SIPP keep compounding. It’s not FT’s job to show you ever nuance - if AJB is like HL then you can chose to pay the fee in several different ways - they are just giving a high level view of different providers for you to compare to, which they are correct to do.

It’s nothing to do with nuances.

A £10 fee taken from money inside a SIPP costs the customer less than a £10 fee taken from money outside a SIPP.

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Keep investing your money when it’s inside the SIPP. Allow your money to keep compounding.

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Complete agree.

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How are some of you working AJ Bell charges £10pm for a SIPP?
The account with them is free, Freetrade charges £10pm.
See: SIPP charges and rates | AJ Bell Youinvest

In relation to the to fee comparison. There are pros and cons to the approach from both providers.

The con situation with Freetrade

Assuming you have zero money with both providers you’d be charged £10pm by Freetrade.

In this scenario, et’s assume you’re on basic rate tax and you put in £100 to each provider in the pension.
Both SIPPS claim £20 tax relief so you have £120 in each.

You also have a bank account you sent your pension payment from and this now holds £10.

Theoretically with Freetrade you’de be charged from your personal account (where the £10 is/ your personal money).

With AJ Bell, you’d be charged from the relief in your SIPP (governments money they gave you)

You do not get tax relief on SIPP fees.
Tax Relief is only available on pension contributions.
Freetrade reduces your personal balance here.

This is very crude and not considering how much you paid for trades and fx fess.


The con situation with AJBell
You hold £1k in both. You have no surplus cash in AJbell.
It’s been a year and you are due to be charged your annual management rate.
With Freetrade you’d have been charged monthly from your personal savings so no harm is done.
With AJBell, they’ll sell some of your holdings to create cash for them to deduct for the annual management fee, the trade fee and any stamp duty/fx fees.

The reality is that you’d have to be very naive to leave no surplus funds in your SIPP but the risk is still there.

FYI with AJ Bell one can pay money out of the regular investment account (aka basic account) too from your non-wrapper money.

So AJ Bell offer both ways of paying fees.

This has nothing to do with keeping your money inside the SIPP invested.

For example let’s assume that I will always cover the FT fee with my monthly earnings so the fee is charged outside the SIPP it will come off my credit card and if it is within the SIPP I’ll make a new contribution to the SIPP to cover the fee.

A FT SIPP will cost me £10 a month from my annual earnings if this is charged outside the SIPP.

As a higher tax payer if this is charged within the SIPP it will cost me £6 per month instead (-40%).

This is because I can fund the SIPP with 80% of the amount £8 followed by HMRC that tops up 20% (£2) directly in the SIPP. Then on self-assessment I can claim back another 20% (£2) from HMRC.

So in the end from my yearly earnings the FreeTrade SIPP is costing me £120 per year as it stands but if it was charged inside the SIPP it would cost me £72 (60%) instead.

By having the fee charged outside the SIPP we are basically forgoing the tax advantages offered by a SIPP. Remember when we drawdown from our SIPPs in the future we still have to pay Income Tax. This is why HMRC tops up SIPP contributions according to our income tax status.

The difference is £48 (40%) a year that I could use to make a new SIPP contribution or ISA investment for example.

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