FAQ Friday: What charges should I look out for when investing?

May 14, 2021

Every Friday, we share the answer to one of the most frequently asked questions (FAQs) from the hundreds of consumers who contact us each week. This week we take a look at investments and the potential charges you need to be aware of before investing your money.

Before making any form of investment, it’s essential that you make sure you fully understand the fees and charges that you will have to pay. Depending on the type of investment, some charges can be once-off, while others may be charged on an ongoing basis and could significantly reduce the value of your investment over time.

Below is a list of common fees and charges that apply to Irish investments:

Once-off charges:
  • Entry charges: One-off costs that you may pay when you make certain investments. Entry charges are generally charged as a percentage of the amount you invest.
  • Exit charges: Exit charges are a one-off cost that you may pay when you end your investment. Exit charges are generally charged as a percentage of the fund value.
Ongoing charges:
  • Fund management/administration charges: Fund management/administration charges are fees you pay for the administration of the fund and other services such as maintaining a record of your investment, calculating the value of the fund each day and providing ongoing advice. These fees are generally charged annually and are applied regardless of whether the fund performed well or not.
  • Performance fees: A performance fee is charged if the investment generates a profit. A performance fee can be calculated in many ways but the most common is as a percentage of the  profit made.
Other charges:
  • Early encashment fee: An early encashment fee is a penalty you may be liable to pay if you cash in your investment before it matures.
  • Commission: is where a financial adviser receives payment or a bonus from the business whose products they sell. However, this is usually built into the overall amount you pay.

In addition to fees and charges, there are also tax obligations linked with the sale of investments. The type and rate of tax you pay depends on the type of income you receive. If you receive a dividend you will have to pay income tax, whereas if you sell your shares for a profit then generally Capital Gains Tax will apply. If you do not use the services of a financial adviser when buying your investments, it may be useful to seek advice from a tax expert about your tax requirements.

The cost of financial advice:

Investment products can often be complicated and difficult to understand. It is important that you are fully aware of both the costs associated with the investment, and the risks involved. Therefore, in most cases, it may be worthwhile to seek financial advice when considering investing any sum of money. It’s important that you talk to an authorised financial adviser about what fees and charges you will be liable to pay, and when they will be applied to your investment. This should also include the cost of their financial advice and how this may affect the value of your fund and any future returns.

Whether you pay a fee or commission, or both, will depend on the type of advice you are getting. Ask your adviser to explain what their fees cover and what you are paying for, and if the costs include a review of your investments from time to time, or if you must pay for that service separately.

Top Tip

Before availing of financial advice, you must be given a document listing all charges in a way that is both transparent and easy to understand.

To help you gather all of the relevant information (including fees and charges) we have compiled a list of essential questions to ask your financial adviser, before you invest:

  • How will this investment meet my future needs?
  • What are the main risks with this investment? Is my capital, or any growth in the investment, secure?
  • Is this investment regulated and am I covered under the Investment Compensation Fund or the Deposit Guarantee Scheme?
  • What charges are involved? How do they compare with similar products on the market?
  • Are the charges ongoing or are they a once-off?
  • What, if any, ongoing services will be provided by the financial adviser and what will the cost be?
  • Do I make regular payments, for example, monthly payments or a once off payment or both?
  • What would happen if I missed a payment on the product?
  • What is the minimum recommended term of the investment?
  • If I cash in my investment early, will I have to pay a penalty?
  • Do I have to pay tax? How much and when will this have to be paid?
  • Will the investment affect my tax or social welfare benefits?
  • How will I find out how my investment is performing?
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