Wealth Manager’s Charges Still High

There were a couple of interesting articles in the FT over the weekend (27/8/2016) on the costs to investors of having someone else manage your portfolio. Data from Grant Thornton suggests that investors who buy investment advice and financial products from mass market investment groups are still paying 2.56% per annum on average. This is only down from 2.86% in 2012 when the Retail Distribution Review (RDR) which unbundled product commissions was expected to reduce them substantially.

Indeed product costs may have come down but it seems that investment firms are making up for the lack of direct kick-backs on product sales by raising other charges.

Now you might not think that 2.5% is high but it can enormously erode your wealth over the longer term. In the same article in the FT it was reported that the average private client with money in a growth-focussed discretionary portfolio achieved a return of 2.3% in 2015. That’s after some costs were deducted but not all. In other words, the return could well have been halved because of charges.

And for that you don’t even get a personalised service unless your portfolio is very large. Due to high regulatory and staff costs, you are now likely to be stuffed into a “model portfolio” where your holdings will the same as other clients of the wealth manager.

Do wealth managers achieve better investment performance than you could do yourself? Not in my experience. There is very little evidence that professional fund managers exhibit any consistent out-performance probably because markets are quite efficient nowadays with the instant distribution of news and analysis so fund managers cluster around the same “average” performance.

There are two simple solutions to this problem: 1) Manage your own stock market investments as ShareSoc has consistently advocated (thus cutting out the middleman, or disintermediation as it is technically called); or 2) Buy very low cost index tracking or other pooled investment vehicles. A judicious mix of 1) and 2) can also be worthwhile if you wish to maximise performance without too much excitement or effort.

High charges are a menace which is why the debate on the recent increases in charges affecting some clients of Youinvest continues to rumble on. Experienced investors know that minimising costs is essential so unexpected changes to charges are always unwelcome as it undermines your nicely considered financial planning and decisions on who you wish to use as a supplier of investment services.

Roger Lawson

Youinvest Charges Postscript

I previously commented, both on this blog and in the ShareSoc Informer Newsletter, on the revised charges that Youinvest announced on the 9th August. The impact on SIPP investors with largish portfolios of direct investments (shares or investment trusts) seemed to be minimal. But the increase in custody charges on funds caused more than one ShareSoc member to complain.

The introduction of a custody charge on holding shares, investment trusts, ETFs, gilts and bonds in SIPPs, ISAs and Direct Dealing accounts may affect some but the charge is capped and in the case of SIPPs there are offsetting reductions in other charges.

The custody charges on funds could now be quite substantial though – for example £1,375 per annum on a portfolio of £1 million consisting only of funds. Any fund portfolio greater than £80k would incur higher custody charges under the new charging structure compared to the current one. But the dealing charge for buying/selling funds will be reduced from £4.95 to £1.50.

The only way to check whether you will be impacted by the new charges is to work out the impact based on your own portfolio size, its constituents and how much you trade. Then you can compare it with other providers although Youinvest claim to be still competitive as against the other major stockbrokers but it’s certainly worth checking to see if you can get a better deal elsewhere because minimising costs is one of the key factors in achieving good investment performance.

It is undoubtedly true though that stockbrokers are coming under financial pressure as trading volumes have been falling, interest on cash held on behalf of clients has almost disappeared, and regulatory costs have been rising (often driven by EU directives incidentally). Youinvest are simply the latest broker to reconsider their charging structures in response to market pressures.

What particularly annoyed some was the fact that if you decide you can do better with another platform provider then the cost of making a transfer can be high. For example £25 for an “in-specie” transfer per holding plus an additional £75 for a SIPP. This probably reflects the amount of staff effort involved in making such transfers which we have commented on before. But the transfer costs might soon be recouped if the portfolio is large. In addition charges to transfer can be minimised by first liquidating into cash, which can actually also avoid a lot of delays and hassle involved in “in-specie” transfers (from my past experience of doing a transfer when Hargreaves Lansdown hiked their charges and from feedback from other members). But one would need to avoid any “initial charges” on funds that might arise by doing so, and any large bid/offer spreads on shares/trusts.

Youinvest are refusing to waive such transfer charges, but it might be worth complaining in writing to YouInvest. If there is no positive response, to then complain to the Financial Conduct Authority as the YouInvest regulator and/or to the Financial Ombudsman (they do cover ISAs and SIPPs although I think direct share dealing accounts might be outside their remit). It seems unreasonable to impose abrupt increases in charges that will affect some customers, without giving them the option to transfer without charge to another provider.

Roger Lawson

Please Vote Against Berkeley Remuneration

ShareSoc has advised investors to vote against the Remuneration Report at Berkeley Group. Is a total pay figure of £21 million in 2015/16 for Executive Chairman Tony Pidgley justifiable on any grounds at all? It has surely arisen as the result of an over generous LTIP scheme which shareholders voted for without realising the possible consequences. LTIP schemes have been one source of the ever growing pay of public company directors and if we are to reign in pay levels we need to return to simpler pay schemes with bonuses and LTIPs being a minor element of total remuneration.

In Berkeley we even have the odd situation in that in addition to an Executive Chairman there is also a very highly paid Chief Executive.

These levels of pay cut significantly into the returns of shareholders. So despite the favourable results that Berkeley have been producing in recent years, ShareSoc asks that you vote against the Remuneration Report.

See the press release here for more information:


Roger Lawson

Companies House Records May Be Lost

The last ShareSoc Informer Newsletter contained an article on the ease with which one can look up the past history of company directors in the new free service provided by Companies House. It focussed on the past appointments of one of the directors of Globo, a company now in administration of course. No sooner had that article been written than Companies House proposed to change their record retention which would make this kind of research impossible.

Presently the Companies House record shows all the appointments in the last 20 years including those in dissolved companies. This is exceedingly useful because knowing the backgrounds of the directors of any company is key to making sound investment decisions. The ability to know who the directors are, and that they are trustworthy, are two of the principles behind much of Company Law.

For example would it have been obvious to the media that Dominic Chappell, the purchaser of BHS for £1, had a history of past business failures – companies dissolved between 1994 and 2005? Without that ability to research the past of directors of limited companies, that information might never have come to light. An article in Private Eye edition 1425 gives many other examples of how information from Companies House was used to reveal the past activities of directors to their disadvantage or embarrassment. Newspaper reporters, indeed this writer, uses the Companies House records as an important research tool.

But Companies House is proposing to change from the current retention period of 20 years for dissolved companies to 6 years which would practically defeat a lot of this kind of research.

It seems that following an EU Court of Justice decision concerning the “right to be forgotten” based on a case against Google, Companies House are receiving regular requests to remove information. But the legal decision was quite limited in scope and it is surely only those who wish to conceal their past activities who might complain. It would be wrong to remove such information when past directorships are a matter of public record and it is important to avoid the loss of key facts.

I am writing to Companies House to express the objections of ShareSoc to the proposed changes, but you may care to do the same.

Roger Lawson

BHP Billiton Meeting and Other ShareSoc Events

ShareSoc has organised a meeting for investors with BHP Billiton Plc on the 29th September at 11.15 am at their London offices. The meeting will consist of a presentation followed by Q&A and then a buffet lunch meeting with BHP Billiton members of staff.

BHP Billiton announced their latest annual results on 16th August and the FT had this to say:

“Writedowns and impairments have dragged BHP Billiton to its biggest annual loss, capping off a troubled year for the Anglo Australian miner that included one of its worst mine accidents. BHP recorded a net loss of $6.4bn after more than $7bn of impairment charges, with the resources group counting the cost of its expansion into US shale oil and gas in 2012. During a torrid 12 months, a BHP joint venture suffered a dam burst in Brazil that killed 19 people. BHP also faced a slide in commodity prices that forced the miner to end its longstanding ambition to maintain or increase its annual dividend.”

But, with commodity prices now more stable is the future looking brighter for the world’s most valuable mining company?

It is ShareSoc’s intention over time to offer our members more meetings with larger companies to complement our regular seminars and suppers for smaller companies. The meeting is free to Full ShareSoc Members and there is a nominal charge for Associate Members and others. Go here for more information and registration: http://www.sharesoc.org/bhp-billiton.html .

Other Events: We also have a full programme of meetings with companies lined up for September in London, Brighton and Altrincham (near Manchester). Go here to see the full list of events: http://www.sharesoc.org/events.html . Companies presenting include Palace Capital, Empresaria, Avation, HarbourVest, Premaitha Health, Frenkel Topping and Plastics Capital. These are great opportunities to meet with fellow investors and learn about smaller companies so please come along if you have not attended one of them before.

Roger Lawson

Book Review – Invest In The Best

The book Invest In the Best, written by Keith Ashworth-Lord, has recently been published. I am familiar with Keith’s work (he currently runs the Sanford DeLand UK Buffettology Fund which has been performing very well), because he presented at a ShareSoc Masterclass event. I also remember reading the Analyst publication many years ago to which he was a major contributor and which very much influenced my own investment style.

The subtitle of this book is “Applying the principles of Warren Buffett for long-term investing success” and Keith is very much a disciple of that master investor – and there is surely not much wrong with that approach. In other words, it’s about some sound financial analysis combined with “business perspective” analysis.

To quote from the introduction: “To be a successful investor requires very few things. Foremost among them are discipline and patience. For me discipline comes from investing only from the perspective of a businessman”. This book attempts to teach you, and does it well, on how to pick quality investments that you can “own forever” (to reiterate Warren Buffett’s views).

So what does the book cover? It explains what business perspective investing is about. Namely identifying companies that meet certain characteristics, and hence will prove to be consistent performers. Some of those characteristics, without listing them all, are “an easily comprehensible business model”, “transparent financial statements”, “an enduring franchise with pricing power”, “high returns on capital employed” and a “high conversion of earnings into cash”.

So he does have certain prejudices (like Buffett) and says “you are unlikely to see me going near oil exploration companies, miners, banks, or blue-sky pharmaceutical and biotechnology companies”. That equates to my own views, learned from experience.

He emphasises that investing in shares is like buying part of a business. To quote: “Ownership confers a part interest in a real business. Shares should not be confused with gaming chips”. I do wish all investors would take that to heart, particularly the inexperienced ones.

The book has chapters on why “Growth is not always what it seems”, on why “Profitability of capital drives shareholder value” (and covers the various ways of looking at that), on “Economic Profit” and on why “Cash Is King”. There is also discussion of uncertainty, financial ratio analysis and on valuation techniques (because the focus is on identifying businesses that are worth intrinsically more than their current stock market price as in the Buffett/Graham approach).

The financial analysis approach may appear somewhat complex and time consuming however to the amateur investor, particularly if you have become reliant on simple rules of thumb such as P/E or PEG ratios. But Keith does highlight all the key factors that investors need to look at.

The chapter on Business Perspective Investing, and the final one on Portfolio Management, are particularly good and also easily digestible.

In summary this book is a worthy contribution to the education of any investor, whether experienced or not. Therefore it has been added to the ShareSoc recommended reading list.

Roger Lawson

Youinvest Revise Charges

AJBell Youinvest, one of the more popular low cost retail brokers, are revising their client charges. These might mean some substantial changes for some clients because of the introduction of a custody charge based on a percentage of investments held. However there is an upper limit of £25 per quarter for a SIPP or £7.50 for an ISA and the previous SIPP custody charge of £25 per quarter is being scrapped. There will also be a “tiered” custody charge for funds which will replace a previous standard percentage charge – the bigger your portfolio, the smaller percentage charge that applies in future.

They have provided a link to enable you calculate the cost impact on your existing holdings and it shows how their costs will compare with other well known platform operators. Certainly for larger holdings they would appear to remain very competitive.

Perhaps any clients of Youinvest who are reading this note might like to comment on the impact (the fact it has been announced in the middle of August when many of their clients may be on holiday suggests that the company may be wishing to avoid publicity on the matter).

From this writer’s experience the Youinvest service is both efficient in administration and low cost. However one gripe is that they do not enfranchise their nominee shareholders, i.e. provide an easy way to vote your shares at General Meetings, or provide information. In that regard therefore I favour other brokers who do.

Roger Lawson