This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Fund Charges – and Discounts

by Alan Reeder, ShareSoc member

The thorny subject of Fund charges and discounts has been much discussed in the Press recently – along with the pros and cons of investing in Investment Trusts versus Funds.

Amid all the discussions of where to invest, a factor often overlooked is the difference in Annual Management Charge (AMC) levied by the Fund Manager.  It is important to bear in mind that although this AMC can vary from one broking House to another – it is the Fund itself that levies this fee – and not the broker.   And despite this fact – it is Hargreaves Lansdown who are at the centre of this discussion – and seen as the culprits – or angels – depending on where you are sitting.

Take for example Rathbones Global Opportunities Fund – just this month, HL sent out an updated Research Note – in which they boasted that they have negotiated a discount for their investors, reducing the AMC from 0.78% down to 0.52%.  Of course, there is HL’s own platform fee of 0.45% to pay on top of this – but what is going on here – how can Rathbones justify charging all investors through other platforms a significantly higher fee?  Are Rathbones taking pity on HL investors who by and large are charged a far higher platform fee than investors through other platforms?  Are they suggesting that it is so much cheaper to administer holdings through HL than through other brokers? Or are Rathbones (who we must assume want to be featured in the HL Beauty Parade) being bullied by HL who are, let’s face it, far bigger than any other platform?

A quick perusal of this Beauty Parade will show many other examples of so called ‘discounts’ – many of them Funds you just would not want to go near, with or without a discount.  Further investigation shows there is a Fund which is not on the preferred list and which has been doing very well since its launch in October 2017 – Blue Whale. This fund, established by Peter Hargreaves, (with a controlling share in the BW Fund management company and still the largest shareholder in his old shop – HL) charges an AMC of 1.14% through all platforms except HL who are charged just 0.89%.

Investigate further and its intriguing to find Fund Managers who want nothing to do with ‘discounts’ – they charge all investors through all platforms the same AMC. Fundsmith is of course on this list, along with Baillie Gifford and Buffetology and many of the smaller Fund names.

Fund Managers earn their keep – and the AMC provides this income, but surely all investors should be treated fairly in accordance with FCA regulations.  Several years ago, the FCA rapped the knuckles of the Insurance brokers who demanded extra discounts from Insurers (and indeed Insurers who offered sweeteners to certain brokers) now it is time that FCA stepped in to tackle the Fund Managers.

One comment
  1. Cliff Weight 20th May 2020 at 10:42 pm

    I quite like Alan’s Blog it as it raises a number of issues without being too prescriptive on what the answer is.

    It raises some interesting issues and I wonder if other readers have similar worries.

    I rather feel that the FCA have backsliding on their commitment to have better disclosure of costs, fees and pricing. This is an area we need to watch.

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