Ways to pay your investment fees (and not think about it)

Paying fees on your accounts is admittedly not a fun task, but keeping on top of your investment charges is important to ensure your portfolio continues to run smoothly.

If not, there is a chance those fees could be taken out of your investments themselves, which could cost you in the future by having less money in the market. Instead, make sure any payments are taken care of upfront so you can avoid any unnecessary hassle.

What charges will I pay?

The primary charges you’ll pay as an AJ Bell customer are account and dealing charges. You can find more details on charges, but these will mainly be based on how much you hold in funds and shares, and how many times per year you have bought or sold investments. AJ Bell also allows you to create an estimate of what your charges will be for a year, to help avoid any surprises.

Depending on what you invest in, you may even have an investment that covers the cost of your fees itself, with no additional contributions on your part. One way you can do this is through dividend payments.

Paying your fees through dividends

Dividend payments are sums of money you receive throughout the year from some of the companies, funds or trusts you invest in. Investments may pay out a dividend quarterly, semi-annually or annually, and you’ll get a set amount of money for every share in the company or unit in a fund you hold. And if you’re receiving dividends from a lot of different companies, it can add up.

When you receive these dividends you can make the decision to invest them back in the market or hold on to them. If you keep this money in your account it can be used for your next fee payment, allowing the investment to pay for itself.

If you invest in a fund, you’ll have to see if that fund automatically reinvests its dividends, or if it pays them out to the shareholders. Some funds will automatically put any money created through company dividends right back in the market, and some will transfer it to you. If your fund transfers the dividend to you, you can use that in the same way by keeping it in your account to pay for fees.

Using income from bonds for fees

If you are a bond investor, you will be receiving regular interest payments on your investment. Typically, bonds will pay you interest twice a year, which is called the bond’s coupon.

You can get different levels of payments from bonds depending on how risky an investment it is. For example, a UK government bond is considered very low risk, so it will probably pay out a smaller amount. A high-yield corporate bond, which is a bond in a company that rating agencies have deemed as higher risk, will generally pay you a higher coupon each year.

It’s typically easier for investors to access bond funds rather than individual bonds. These funds will make payments to their investors, so you will still receive an income, but it’s important to check your individual fund to make sure.

These coupon payments from a bond or bond fund can be another way to take care of any charges. Just like with dividend payments, you can simply leave this money in your account.

Paying fees through a direct deposit

If you are not investing in anything that would provide you with income, or if you’d rather just reinvest any income you receive, you can also choose to set up a direct debit.

You can set this up with AJ Bell by logging into your account and going to the ‘regular payments’ page. The direct debit will be set up with the bank that’s connected to your AJ Bell account, the same way it is with any money set up for an automatic investment.

You can use the estimation calculator to get a gauge on how much your fees will be, to set the direct debit at the right level. Just remember that if you’re buying or selling stocks or funds, there are fees for each transaction.

If you opt for a one-time payment instead, you can use the ‘single payment’ page, where you’ll find a variety of options to allow you to pay into your account.

Paying fees through your dealing account

If you’re putting money into your ISA that is then used to pay for charges, this will count as part of your ISA allowance. To avoid this, you can instead ask for the charges to be collected from your dealing account. If you don’t have a dealing account, you can open one and have the cash for fees held in the account for no charge.

This means that you can use your entire £20,000 ISA allowance for investments that will be protected from tax, without your fees eating into that amount. However, if there is not enough cash to cover your charges in the dealing account, any leftover charges will come from your ISA account.

What happens if I don’t pay my fees?

If you don’t have enough in your account at the time that charges are due, the account will be overdrawn. This means that the next time money comes into your account, including through dividends, interest, or payments, the money will first be used to clear those debts.

If your account continues to be overdrawn, you’ll be contacted to clear this payment. If it’s not cleared, then AJ Bell will sell your current investments to pay for the charges, and you will be charged a disinvestment fee of £9.95. You don’t get to select which investments are sold, and generally it will be from your largest holding.