New funds with no annual management charges
A fund management group is no longer going to levy an annual management charge on six funds. However, you will have to pay a 2% initial charge when you invest.
Architas, part of AXA, is launching an innovative charging structure on six investment funds. Investors will have to pay a chunky 2% initial charge when they first invest, but they won’t have to pay an annual management charge (AMC).
Normally fund investors pay an AMC in the region of 0.5% to 1.5% a year and either don’t pay an initial charge, or their charge is refunded by their ‘fund supermarket’ or investment platform. The most famous platform is Hargreaves Lansdown.
With Architas, the 2% initial charge won’t be refunded.
Obviously the Architas charging structure works best for people who intend to stay invested for long periods. The longer you stay invested, the more you’ll benefit from not having to pay an annual management charge. Architas claims that investors will probably make an ‘ongoing saving’ once they’ve been invested in one of the funds for four and a half years.
Although investors won’t have to pay an annual management charge to Architas, there will still be some ongoing costs of around 0.2% a year.
The funds
So what will you be investing in?
All six of these funds are ‘multi-manager’ funds that invest in a range of index tracker funds across the globe. Each multi-manager fund has a different risk profile, so investors can choose which fund suits them best on that basis. Here are the six funds:
*Architas MA Passive Reserve Fund – lowest risk fund
*Architas MA Passive Moderate Fund
*Architas MA Passive Intermediate Fund
*Architas MA Passive Progressive Fund
*Architas MA Passive Growth Fund
* Artchitas MA Passive Dynamic Fund – highest risk fund
Now I’m not normally a fan of multi-manager funds because you end up paying for two layers of fund managers. Firstly there’s the manager of the multi-manager fund who picks the underlying funds to invest in, and then there’s all the managers of the underlying funds.
At least with these Architas funds, the underlying funds are index trackers which means that their charges are low and you’ll only have to pay 0.2% a year for your investment.
That said, you could definitely invest more cheaply if you invested directly in a couple of index trackers yourself rather than go for the Architas funds. For example, if you invested directly in the Vanguard FTSE All Share Index fund, your total annual costs would be around 0.15% a year with no initial charge. You can read about more cheap index trackers in Top 10 index trackers.
With Architas you’re effectively paying someone to consider risk for you. So if, for example, you’re planning to retire in five years’ time, you might not want to take too much risk, and so you might go for the Architas Passive Reserve fund.
Alternatively, if you wanted to manage your risk profile yourself, you could just gradually sell off your Vanguard index tracker investments as you approached retirement.
Price structure
As for the price structure, paying most of the charges upfront may appeal to some folk, but I’m not that excited.
For starters, 0.2% a year is still a significant annual cost even if it’s not classified as an AMC.
And although I try to invest for the long-term, there’s always a chance I’ll change my mind and sell early. If I’ve already paid a chunky initial charge not that long ago, I might feel obliged to hang on and not sell when I thought was it was best to do so.
So for me, these Architas funds are a ‘no.’ But if you’re certain that you’re investing for the long-term and you want someone else to make decisions on risk, then they could be an attractive option.
These Architas funds can currently only be bought via a financial adviser. They should be available on platforms for direct investors within a month.
More from Lovemoney:
Six great reasons to choose an index tracker
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