Smart Portfolios: reducing our fees to help your investments grow faster
Research finds that one of the main reasons everyday savers choose not to invest is because they believe wealth management is simply too expensive. We found that the total cost for a ready-made portfolio across other online wealth managers is around 1.1%1, with some charging over 1.8%2. High fees like these eat into your portfolio returns.
In 2017, IG partnered with BlackRock to offer savers access to a low-cost wealth management service called IG Smart Portfolios. We recently reduced our management fee for IG Smart Portfolios, to help grow your investments faster. As the table below shows, the average annual total cost of owning one of our portfolios is just 0.72%, and even less if your portfolio value exceeds £50,000 as we cap our management fee at £250 per year.
What is an IG Smart Portfolio?
IG Smart Portfolios is a discretionary investment management service, which means that we make investment decisions on your behalf to help grow and protect your wealth over the long term. We have partnered with BlackRock, the world’s largest asset manager, who provide us with investment research which enables us to provide institutional-quality portfolios built to suit your risk appetite. IG's portfolio management team will monitor, manage and rebalance your portfolio to ensure you have the appropriate portfolio for your risk appetite.
High fees erode your returns
Our management fee is now just 0.5% on the first £50,000 and free thereafter - meaning the maximum management fee you pay each year is £250 per account.
There are also other costs to consider before you invest, and we feel it is important to be transparent about these. We use exchange traded funds (ETFs) and the average annual cost for the ETFs we use in our portfolios is currently 0.15%. Also, there is the effect of the bid-ask market spread from when we buy and sell the ETFs used to build and rebalance your portfolio, which we estimate to be no more than 0.07% per year.
Paying high fees over extended periods of time will hold back the growth of your investment pot due to a weaker compounding effect. For example, if you invested the same amount in a Smart Portfolio and also in a ready-made portfolio with a leading wealth provider which cost a total of 1.8% pear, assuming annual returns of 6% before fees, the chart below shows how much faster your portfolio could grow with IG over 30 years.
Under these assumptions, at the higher cost provider your investments could grow to around £388,962. If you invested the same amount in an IG Smart Portfolio, your portfolio could have grown to £536,433 with the help of lower fees - a difference of £147,481.
We are close to having a 3-year track record
Since we launched our range of Smart Portfolios in 2017, our portfolio performance has been really encouraging. All of our four multi-asset portfolios have outperformed their respective benchmarks comfortably. Our Balanced portfolio, which currently invests 47% in equities, 49% in bonds and 4% in gold, has averaged +4.6% per year since February 2017, compared to +3.3% per year for its benchmark. The benchmarks we use for our multi-asset portfolios are the ARC Private Client Indices, which track net of fee performance of private client portfolios from wealth management firms such as Coutts, Schroders and Rathbones.
You can see a full breakdown of our performance and the performance of the BlackRock models on which our portfolios are based upon here.
The only Smart Portfolio that hasn't beaten its benchmark since we launched in 2017 is our Conservative portfolio, which is very risk-averse and invests solely in cash-like securities and bonds. This portfolio is benchmarked against the 3-month Libor rate +1%. Over the longer-term we are confident that this portfolio will deliver returns higher than its benchmark given that it takes on a larger amount of risk.
Looking at performance over the last 12-months, our average outperformance against each benchmark was +2.3%. You can see our 12-month performance for each portfolio against its benchmark below:
Data runs from 30 Nov 2018 to 30 Nov 2019, net of fees.
How to open an account
You can open an account in two ways; if you have an IG account already, simply go to MyIG and select ‘Add an account’, or to create a new account you’ll need to go to https://www.ig.com/uk/investments/smart-portfolios and click ‘Create live account’. You can also find out further information about the product on this page.
If you have any questions about the product feel free to post them in the comments and I'll be happy to answer them.
1 Research by IG looking at annual management fees across online similar wealth managers
2 Leading wealth provider refers to Hargreaves Lansdown's Portfolio+
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