VCT broker commission

[mesb48]

I’m trying to find a broker that refunds trail commission on VCT investments since it seems completely wrong to me that you have to pay commission for a non-advised, execution only investment.

I’ve found ii.co.uk refund all trail commission if you apply with them (unlike the derisory amounts someone like wealthclub gives you back) but you pay a one-off £30 application admin fee. This seems a good deal to me with the only downside being it is a paper based process rather than being online - not a major issue perhaps as long as you are applying well before deadlines etc.

Does anyone have experience of a better option than ii?

[Kidman]

I am not familiar with ii's services so I have one question.

Do ii rebate any of the initial commission which WealthClub (et al) do?

Remember when comparing ii's £30 charge to WealthClub (et al) that the rebates attract income tax and the £30 fee is comng out of your net income so you would have to receive £50 more rebate (at a 40% tax rate) over the years that commission is paid to break even.

I use WealthClub because their service is excellent and I am happy with their level of rebates.

[mesb48]

Hi Kidman. I think you’re referring to the discount on the initial charge. Yes I think this treatment would generally be the same for both.

You’re maybe a bit more sanguine about the costs and commissions than I am. Take the current Pembroke offer which has 0.75% trail commission. Invest £10,000. Trail commission for execution only brokers is £75 per annum, totalling £375 assuming you hold for 5 years - reduced to £225 if you pay 40% tax. I’d be happy to have that all back in return for paying a £50 (using your argument) admin fee. Wealthclub rebate in this example is 0.15% for just 3 years, so £45 in total - reduced to £27 if you pay 40% tax, it’s really a bit of marketing gimmick, they keep most of the commission.

Quite a big difference in my view just to process an application - especially when you expand this across several investments over several years.

Think I’ve seen other posters share information about the cheapest way to sell shares at the end, e.g. using x-o. I’m just trying to combine that with finding the cheapest way to buy and hold them. VCT charges are so high, every little bit counts in my book.

[Kidman]

Hi Kidman. I think you’re referring to the discount on the initial charge. Yes I think this treatment would generally be the same for both.

I've had a look at the ii website and am not so sure. Here's what it says:-
"We charge a market-leading one-off fee of £30 (inc VAT) to process your VCT application.
Most VCT Managers offer broker discounts, which we will reinvest fully for you in new shares.
Unlike some brokers we credit all the trail income we receive from your VCT investments as cash in your account."

Is a "broker discount" the same or as much as a partial initial commission rebate that other brokers offer?
I am puzzled why ii should use different terminology to other brokers and suspect they are offering less.

The broker discount rebare is given in extra shares so probably avoids income tax but is worth what those shares receive in divdends plus theuir eventual sale price.

[UncleEbenezer]

Didn't we (Fools) look at the II deal some years back and conclude that the one-off flat charge was the cheapest available deal for larger purchases?

That would be in the days of ClubFinance's 75% rebate of trail commission, which was obviously extremely competitive. Nowadays the threshold deal size for II to beat it has been slashed.

[mesb48]

If you look at the Pembroke offer on the ii and wealthclub websites, the full initial charge is 5%, they both give a 2% discount so the net initial charge is 3%. It’s the same initial set up.

Would need to compare all the others one by one, but suspect they are the same since they are both acting as execution only brokers.

[mesb48]

Didn't we (Fools) look at the II deal some years back and conclude that the one-off flat charge was the cheapest available deal for larger purchases?

That would be in the days of ClubFinance's 75% rebate of trail commission, which was obviously extremely competitive. Nowadays the threshold deal size for II to beat it has been slashed.

Thanks UncleEbenezer. Started to get excited there was another option but looks like they are now part of wealthclub (and things got less generous thereafter!)

[SpinDoctor]

It is worth exploring other options.

WC are presumably by far the largest 'player'. I am not keen on their charges, highly assertive marketing, and some other aspects cause me concern.

There are alternatives though, eg Chelsea FS (https://www.chelseafs.co.uk/products/vct/offer) as well as others.

IMO they offer decent service and are often/sometimes a little less expensive eg Chelsea offers Pembroke VCT at 2% discount + 'cashback' of first year trail commission upfront

[Kidman]

There is always one other option, to buy direct.

I believe this method uses a share price that means that one receives about the same number of shares as using a discount broker but then one doesn't get any trail commission rebate at all.

I wonder how long ii will rebate all the trail commission. Their new owners as of 2022, abrdn, may make changes in the future like WealthClub did for ClubFinance clients.

[mesb48]

It is worth exploring other options.

WC are presumably by far the largest 'player'. I am not keen on their charges, highly assertive marketing, and some other aspects cause me concern.

There are alternatives though, eg Chelsea FS (https://www.chelseafs.co.uk/products/vct/offer) as well as others.

IMO they offer decent service and are often/sometimes a little less expensive eg Chelsea offers Pembroke VCT at 2% discount + 'cashback' of first year trail commission upfront

Thanks for this, I’ll have a look at Chelsea.

[Kidman]

An interesting article about ii only now taking tax from trail commission rebates although HMRC made that requirement clear ten years ago.
Perhaps a policy change brought on by abrdn being in charge?

https://forums.moneysavingexpert.com/discussion/6436218/interactive-investor-failing-to-deduct-tax-from-vct-trail-commission-rebates

[Kidman]

There are alternatives though, eg Chelsea FS (https://www.chelseafs.co.uk/products/vct/offer) as well as others.
IMO they offer decent service and are often/sometimes a little less expensive eg Chelsea offers Pembroke VCT at 2% discount + 'cashback' of first year trail commission upfront

I received the letter last September from Chelsea about their Pembroke offer but now see on thier website that they have a wide range of VCTs with the same offer.

Another alternative is http://www.wealthme.com who seem to pay out more but have some administration fees.
https://www.wealthme.com/investments-and-services/venture-capital-trusts/vct-current-offers

[mesb48]

Another alternative is http://www.wealthme.com who seem to pay out more but have some administration fees.
https://www.wealthme.com/investments-and-services/venture-capital-trusts/vct-current-offers

Really interesting, I may well give that a whirl for some of my previous investments. Thanks for highlighting this.

[silentknight]

An interesting article about ii only now taking tax from trail commission rebates although HMRC made that requirement clear ten years ago.
Perhaps a policy change brought on by abrdn being in charge?

Sorry, this may be my fault. I contacted II in November to check whether they deduct tax from VCT trail commissions, so that I could fill in my tax return correctly. They spent several months saying they were "working with our Subject Matter Expert within our tax department to seek advice as to how to proceed with the processing of these payments", finally replying in March to refer me to their corporate action notice. It is hard to believe that a company as big as II wasn't aware of longstanding tax rules.