Home—Blog—Do you think £50 is a 'nominal' amount of money?
Jan 12, 2012, 05:29
Posted byMerryn Somerset Webb
Comments (10)
I wrote last week that new entrants to the fund management market now appear to understand that they need to at least pretend to compete on price – as companies do in most other markets.
However, it turns out that not all the established players in the market are with the programme on this – particularly in the private client industry.
A reader has forwarded me a note to him from Killik and Co. It offers him the opportunity to have the company build him a "bespoke UK-listed equities portfolio."
The nice people at the firm will gather together for him ten holdings with a"defensive growth bias" and with "strong long term growth prospects not reliant on sustained cyclical recovery." They'll also try and make sure that he gets a "minimum prospective dividend yield of 2%." They'll time their stock selections "as precisely as possible", and even let him say if he doesn't want them to buy any commodities or oil and gas for him. They'll also write down their ideas "in depth" so giving him comfort that his stock holdings are "fully researched".
That sounds like a lot of work for them. But I don't suppose it really is – Killik is a stockbroker, so stock picking is what they are supposed to do anyway: any of the stocks they might shovel into your portfolio will already be part of what they call their "virtual portfolio of ideas". So what do you think Killik might charge you for this list of ten stocks? A management fee of 1%, perhaps, to cover the admin of opening a special account for Killik to put your shares in, the fact that you are getting a "tailored account" plus a contribution towards your broker's bonus? Or maybe a little bit more because you are a private client and everyone in the business knows it makes sense to charge private clients extra. If so you'd be wrong.
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They'll be charging you 2% of the value of the portfolio every year, plus 10% of all returns over those made by the FTSE All Share Index (plus VAT). And they'll also be charging you £50 per trade regardless of the size of the trade – rather than the £15 or so you'd pay at a discount broker. That's a sum they consider to be "nominal". This is totally, absolutely, 100% outrageous. As a product it has few saving graces. As a charging structure it has absolutely none.
It doesn't even pretend to be clever – no derivatives, no short selling, no shifting around asset classes. None of the stuff that allows hedge funds to get away with claiming (wrongly of course) that they can charge silly fees because they can do stuff other people can't. And it doesn't even invest abroad and therefore need complicated stuff such as bilingual analysts or aeroplane flights to be involved.
Instead, it is just a concentrated (and therefore risky) portfolio of long-only UK-listed stocks. For which they want to charge double the normal UK management fee, as well as a performance fee.
My views on performance fees (they are wrong, wrong, wrong) are here: The only kind of performance fee I wouldn't mind. But I feel much the same about the 2%. It is rapaciously high. And it is totally out of whack with market trends.
Get the iShares FTSE UK Dividends Plus ETF instead. Or a good investment trust (Morningstar has just started rating them, which is helpful). Or really just about anything.
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(13 January 2012, 08:23AM) Complain about this comment
Ha - that' s telling em Merryn ! Good on you
(13 January 2012, 11:46AM) Complain about this comment
The Killik Special Situations ISA is a unique, discretionary managed ISA offering. We acknowledge that this may be construed as a relatively expensive product, although bear in mind the £50 per trade is payable regardless of bargain size; it is £50 on a £1m order too and many “bricks and mortar” private client broking firms charge 1.65% per trade. A discount broker trades on screen prices, whilst the Killik dealers pride themselves on marked price improvement.However, our USP on the Special Sits ISA is performance. The manager’s background in institutional broking has given Killik clients unprecedented access to institutional idea and deal flow/placings. The virtual portfolio of preferred ideas that you refer to has now been running for 3 years. A very detailed report is produced monthly. It is+173.5% versus the +49.4% return of the FTSE All Share Total Return over the period; if a fund would have ranked no.1 in the IMA UK All Companies sector over 3 years.
(13 January 2012, 01:46PM) Complain about this comment
Crikey Dan, you've got a brassneck for responding to this article. And exactly how many £1m 'trades' do you get to process in the average ISA, then? There is one absolute certainty here....with the fiscal drag of Killik's charges, there is only ever going to be one winner over the long term.Quote from Woody Allen: "a stockbroker is someone who invests your money - until it's all gone.
(13 January 2012, 04:42PM) Complain about this comment
Now the News of the World has gone, we only appear to have you Merryn. Wish you would get a joh with the FSA preferably in charge of it.But Daniel has indicated that his product is unique and one can take some comfort from that.
(13 January 2012, 10:47PM) Complain about this comment
I'm sure Daniel's product is unique. Uniquely expensive!It does take some brass neck to go punting things like this with no shame or irony - even after you have been 'rumbled'. But I'm not surprised. If there is one thing I've learned (from many years an accountant) is there is no shortage of salesmen in these sort of markets. They can talk such a good game and are so convinced of what they offer (usually without knowing much about it) they really can be very convincing with no hint of embarrassment. It is a unique skill derived from a lack of knowledge or scruples. In some ways they intrigue me, but as a professional advisor, such people disgust me .
(14 January 2012, 05:47PM) Complain about this comment
Of course £50 is not a nominal amount of money. I am sure I am not alone in struggling to find £50 per month to contribute to my stakeholder pension. It just shows that some of us inhabit different planets.
(14 January 2012, 11:43PM) Complain about this comment
You have to measure the value of £50 against what you are acquiring in exchange. For one cup of kopi luwak coffee it is a fortune. For a rolex from a guy in a pub it is norra lot. If competing parties are offering the same thing at different prices, logically you would go for the cheapest. However, customers might perceive they are receiving a better service from Killik by paying more for something that numerous others can provide for less. Is it any different than people shopping at Waitrose when they can go to Aldi instead?
(17 January 2012, 11:34AM) Complain about this comment
DanIf the portfolio was a fund it would be in breach of the COLL rules on diversification- so not allowed? Maybe you have heard of COLL, no?? I thought not. Maybe have a look at an entity called the FSA (maybe you have not heard of them, either?) and their 'Handbook'. The COLL sub rulebook contains the rules for collective investment schemes. Have a read, you never know.... next time you blog you might not come over as a thick salesman.My Dad's investments are with Killik, well they are for now. But not for much longer...
(20 January 2012, 04:42PM) Complain about this comment
If £50 is nominal, why bother charging it. Much better is to charge a management charge (1% of money in), then a post-hurdle bonus, I saw one yesterday that was a fifth of any growth over 8%.Don't know why everyone doesn't do that. It's how you remunerate people in sales jobs.Not sure how the description above makes things tailored. That sounds like a low-risk low-yield portfolio. What if I don't want that. And quite frankly 2% div yield is a joke. I can get 3% on a 12m savings account anywhere.
(20 January 2012, 07:38PM) Complain about this comment
MerrynSpot-on, as always.Please don't be deterred by the industry
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