New research has shed light on the costs of platforms when investing in investment trusts. Seventeen different adviser platforms that held portfolios of investment companies between £25,000 and £1m were assessed by the Association of Investment Companies and the lang cat.
Investment Week’s Jayna Rana reports that the most cost-effective “appears to be” Hubwise, while Novia “appears to be the least so”. She explains that most ongoing costs are taken as a percentage of assets, although Alliance Trust Savings’ model has a flat fee; and that Ascentric and Seven IM do not charge for trading investment companies, but Raymond James and Alliance Trust Savings have an option whereby trades are included for an increased charge.
Trading costs range between £2 and £25 on other platforms, with larger transactions costing more.
Nick Britton, head of training at the AIC, is quoted as saying: “The good news is investment companies are now available on more adviser platforms than ever before, and on 15 out of the 17 platforms where they are offered, can be held in model portfolios. However, not all platforms will be cost-effective for all clients, so care needs to be taken to choose the right one.”
Investment Week article
Questions over Fidelity’s cost structure
Our previous ‘Word on the web’ looks at Fidelity International’s change to a performance-based payment model. Under the changes, clients will get money back if funds underperform over a rolling three-year period. These changes will come into effect next year.
FTAdviser’s David Thorpe looks at this in greater detail, as Fidelity did not disclose what the performance level fee will be, or the level of the fixed portion of the fee.
Thorpe quotes Ben Yearsley, a director at Shore Financial Planning, who says that performance fees have been an issue because “heads the fund manager wins and they also win on tails”.
Regarding Fidelity, the main question for Yearsley is: “What time period the performance fee will be based on and how subsequent refunds will be calculated.”
Fidelity’s actions are interesting, he observes, but it’s hard to be for or against it at this stage.
Architas’ investment director, Adrian Lowcock, comments on the added complexity for investors “as they will not know what the charges are at the point of investment”.
The fees also mean investors will “effectively” face an increased charge if a fund manager is good at their job.
“However, they can work if the structure of the performance fee means the interests of the fund manager and the fund group are aligned with those of their investors. It will be interesting to see how Fidelity approach this.”
FTAdviser article
Lloyds’ cost-based tactics
Costs are also a crucial factor in action brought against Lloyds by London-based law firm Harcus Sinclair on behalf of shareholders, Anthony Hilton FCSI(Hon) writes in the Evening Standard.
The trial centres on how Lloyds handled the acquisition of Halifax Bank of Scotland (HBOS). The shareholders argue that Lloyds’ board withheld information about HBOS’ “parlous financial condition”.
They argue that, if the full details were known, the price to buy would have been lower or the deal might have been rejected. Both courses of action would have reduced shareholders’ losses on Lloyds’ shares.
An extra dimension is added to the case via contemporary submissions. While shareholders were told everything was okay with the deal, the Competition and Markets Authority were told by Lloyds that blocking the deal would be a “calamity” that would result in HBOS’ collapse.
Lloyds disclosed all that they legally had to, and could argue that the ends justified the means – and they “did the right thing in the public interest because an HBOS collapse might have brought down the entire UK banking system”.
Lloyds’ stance is why they’re building up legal costs over £20m. They believe that doing so will make those bringing the case “blink first and back off”.
However, the shareholders’ costs are covered by Therium Capital Management. The hedge fund will get the largest of either 30% of the winnings or three times the cost incurred, meaning both sides are evenly matched.
This, Hilton says, puts Lloyds in a bad position. Its image is already tarnished, and the trial, whatever the outcome, will only go over old ground that damaged their reputation.
Hilton concludes: “It is often said that public company directors live in a bubble separated from the real world and remain unaware of what the public thinks of them and expects of them. That is certainly how Lloyds looks.”
Evening Standard article
Seen a blog, news story or discussion online that you think might interest CISI members? Email jake.matthews@wardour.co.uk.