'The conspiracy against private investors'

Aug 09, 2012

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Every year in this country, we pay fund managers around £7.3bn in fees to control our money. Why? It's a question that we've been asking ourselves for years. So we called in Tom Bulford, a former fund manager, to give us a good answer. Here’s what he said.

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  • 1. Joe

    (09 August 2012, 01:24PM)  Complain about this comment

    Well said Tom. These guys have been ripping us off for years. I'll only ever invest direct in shares/bonds now. Keep the ideas coming. Joe

  • 2. Executioner - I make my own decisions

    (09 August 2012, 01:43PM)  Complain about this comment

    I fail to understand why investors always want their hand holding.
    Just remember eggs in baskets. The reason to buy Footsie 100 shares is that their spread is so much smaller relative to their share price. Many have a solid dividend, even Astra/Zeneca who are suffering because they are not replacing (yet) drugs coming off patent protection. Look at companies that merit respect Diageo (though it had problems a few years/decades ago), IHG, Rolls Royce (they had engine problems in Australia but recovered), Compass. Just read the papers and if a company gives a good set of results, go for it.

  • 3. Mike T

    (09 August 2012, 02:46PM)  Complain about this comment

    Oh Tom, you make it sound so easy. Well, it aint. BUT. If you don't take control you are at the mercy of people who have no mercy. I started investing 50 years ago and I must have made every mistake in the book. Bought high sold low. Followed the herd. All the rest. Still investing for our old age. (We retired 14 years ago) If I hadn't started we would still be in the building societies---and look what happened to them. Now we have divies coming in from all over, plus our pensions. Never earned enough to pay high tax either.

  • 4. Nicholas

    (09 August 2012, 04:59PM)  Complain about this comment

    Dear Tom,

    What you say is true. I have tried funds where one has to pay up to 2% per year with all their hidden charges. Fund managers have yachts and nice houses but their clients don't. I believe it was once said "How does one make a small fortune?" answer: "Give your broker a large fortune." This would go for fund managers.

    The gold thing also worries me because it is so easy for big bankers to manipulate the price. If a few big banker/holders decide to wait for gold to hit $1900 and agree to sell it when it does, what happens?
    What happens is that the banker/holders get $1900 and the next day we get much less. Then they re-buy more cheaply and the same process happens again. The whole gold thing is a fix-up; gold will only incease in price inasmuch as the big players wish it to. They have control of the gold price and can make it whatever they wish it to be.

  • 5. Nicholas

    (09 August 2012, 04:59PM)  Complain about this comment

    Dear Tom,

    What you say is true. I have tried funds where one has to pay up to 2% per year with all their hidden charges. Fund managers have yachts and nice houses but their clients don't. I believe it was once said "How does one make a small fortune?" answer: "Give your broker a large fortune." This would go for fund managers.

    The gold thing also worries me because it is so easy for big bankers to manipulate the price. If a few big banker/holders decide to wait for gold to hit $1900 and agree to sell it when it does, what happens?
    What happens is that the banker/holders get $1900 and the next day we get much less. Then they re-buy more cheaply and the same process happens again. The whole gold thing is a fix-up; gold will only incease in price inasmuch as the big players wish it to. They have control of the gold price and can make it whatever they wish it to be.

  • 6. Philip C

    (09 August 2012, 05:01PM)  Complain about this comment

    I wholly understand the argument that fund managers' fees reduce my return. However, my pension is in a SIPP with an adviser who rebates all the trail commissions to offset the commission charged for managing my SIPP. So far they seem to have outperformed relevant benchmarks.
    I manage my own stocks and shares ISA so I realise that one needs to spend much time and effort doing so if one is to be more successful than a good manager. I try to find good individual shares (one is SDL - but I was also invested in ROK Group when it went bust!) and use Investment Trusts to take me to more esoteric areas.
    So, for people, like me, it is too nerve racking to take on the whole of one's own 'pension' . So I just run a part of my portfolio! I am trying to compare my performance with my adviser.
    Who is to say that any success I have had is not simply the result of a rising market? It is only when the tide goes out that we see who is swiming naked!

  • 7. GPS MacPherson

    (09 August 2012, 08:39PM)  Complain about this comment

    By chance happened to come across the following today:

    http://blog.jasonhsu.org/2012/07/selling-hope.html

    Offers another interesting perspective on why people choose managed funds as opposed to making their own investment decisions. Not saying I necessarily agree with all of it, but it does raise some interesting points...

  • 8. David B Headington

    (09 August 2012, 11:43PM)  Complain about this comment

    It interests me that some of your colleagues are fund managers and although they offer semi free advice, they are really interested to get you to invest in funds which they recommend, and presumably the more investors they can get to use their funds will be of financial benefit to them. Fleet Street publications Ltd does not exactly speak with one voice.
    Second point is that the worry from Nicholas about big bankers and gold. Do you have any comment about that please.

  • 9. John Corden

    (10 August 2012, 02:41AM)  Complain about this comment

    Yes,
    I am inclined to agree.However you have to have the time to invest wisely and manage your portfolio well.The powers that be do tend to want people to conform to certain things and the investment industry is certainly interested in its cut.
    John Corden

  • 10. bob the electrician

    (11 August 2012, 11:41AM)  Complain about this comment

    My nominee account was sold to Towry by Edward Jones without me being consulted. Towry sold all my investments without instructions from me. The first thing I knew about it was when I got the contract notes and Excessive charges for selling my portfolio. These were excessive and included a note for the sale of a corporate bond within weeks of maturity. I think that i was selected on my date of birth, I was over seventy and they thought that I would just acquiese. I registered my complaint with the ombudsman and threatened to raise all hell. I got all the money for sale of my assets returned and a small amount of compensation. I sent incontrivertible documentary proof of what had happened but they took no action.
    Bob the electrician

  • 11. David Topping

    (12 August 2012, 11:23AM)  Complain about this comment

    After 20 years of pitiful fund returns from much vaunted fund managers I now invest direct using advice from MoneyWeek's band of advisers, dividend letter Penny sleuth and Dr Mike Tubbs. Plus wine and Funding Circle. My remaining much reduced fund holdings are with Aberdeen, Invesco Perpetual and Fidelity. A dash of gold.

  • 12. Roger

    (15 August 2012, 10:43AM)  Complain about this comment

    This argument depends on how large your egg is. If you asset is a couple of K, then you are better off relying on funds. If your asset is a couple of 100k, then you better manage yourself. In between? Well, no body knows.

  • 13. Barkingmad

    (15 August 2012, 11:15AM)  Complain about this comment

    "This argument depends on how large your egg is."

    The argument really stands for both - the only downside is probably that if you only have a few K to invest the transaction costs to have a decent spread of shares could be significant... but you could just buy a low cost FTSE tracker to get diversity and low cost.

  • 14. Peter

    (15 August 2012, 12:56PM)  Complain about this comment

    The Equitable Life fiasco was a watershed moment. The silver lining was that I began to take an interest in the destination of my savings and to understand pensions, the significance of charges and where the true interests of "Independent Financial Advisors" lay. I started a SIPP and with the help of a brilliant and trustworthy local stockbroker my financial future has been salvaged. I dread to think what would have happened if I had stayed in EL and the other so called blue chip funds.

  • 15. John Smith

    (11 September 2012, 01:27AM)  Complain about this comment

    God what are you talking about, losing 2 to 3 percent a year in fees? what about some of the tips you have given to private investors who have lost 50 per cent plus in a matter of weeks or months. Tom put your money where your mouth is and become a real celeb, plus dont flatter yourself you couldn't run the country sounding like that LOVL

  • 16. Dave

    (17 September 2012, 12:47PM)  Complain about this comment

    Well said. If you check the performance of the funds online, you can see that most fund managers do not equal or outperform the market anyhow. So you end up paying for the privilege of loosing money to "home" investors anyhow. I believe all funds should be forced to state these performance figures and the total expense ratios before you sign up to the fund, and every subsequent year in an annual report to the individual investor! Surely more people would then heed your excellent advice.

  • 17. Ewan

    (23 September 2012, 01:19PM)  Complain about this comment

    I discovered this problem when trying to invest for my grandchildren for uni fees, so I decided to run my own system through an online shares ISA. Five years ago I deposited the maximum ISA allowance of £7,000 and started buying in lots of £2,300 (i.e. 1/3 of £7,000). After the third holding I sold the holding showing best profit in order to buy each new holding and banked the profit. As the bank accumulated enough to buy an extra holding, my portfolio grew and now 5 years later, I have 16 holdings worth £35,193 net. So, apart form a 40% stop loss policy, I only sell to buy a new holding. However, it is not for the faint hearted - of 81 holdings sold, 15 have lost, and 8 current holdings are showing a loss. But it just goes to show that if you make your own decisions and hang on, you can do very well without fund managers (or their fees) and even beat the best of them!

  • 18. Doing My Best

    (24 September 2012, 10:11PM)  Complain about this comment

    In almost all cases all commentary/articles/opinions are of someone or a company trying to sell you something.

    Money Week is no different as it has a number of different publications. I do subscribe to Money Week but none of the other publications and I consider Money Week great value for money. I read with interest and then, if I find something interesting I try and find additional articles that are either for or against the opinion. After doing my homework, often not enough, a quick glance at the charts together with a "gut" feel I make my investment decision.

    I sincerely hope my approach is good and not just pure luck as my returns less costs are thankfully near the top end of the scale.

    It is not easy, it takes huges amount of time and effort but the rewards (together with the downside) are there to be had.

  • 19. Ken

    (16 October 2012, 07:01PM)  Complain about this comment

    Re. your article on fund management.
    I notice you did not pick out or respond to my blog which took a different approach to you. Why not. In it I said that how else does a grandad invest in a long term plan for a grandson when he has not got the time to devote to moving in and out of the market and will not be around in the long term. The only way is to invest in a basket of funds in a reputable firm like Hargreaves landsdown.

  • 20. trader

    (07 November 2012, 11:18AM)  Complain about this comment

    Hello Tom I could not agree with your video more. Fortunately for me I have never used an IFA or invested in a fund. I have been investing in the markets for more years than I care to remember! I notice the brokers offering nil fees to entice investors to buy funds.I trade full time an enjoy a fantastic life style. For newbies there are fantastic financial web sites out there for them to use to get started.

  • 21. brian

    (12 November 2012, 11:50AM)  Complain about this comment

    hi I have never bought into a fund nor used a IFA I have on many occasions lost money, though I have also done well on occasions I enjoy watching my shares up or down and once invested consider the money lost so a gain is great a loss makes no diference

  • 22. trevormac

    (27 December 2012, 12:58PM)  Complain about this comment

    years ago I traded on the Melbourne 'Change.This consisted of walking in off the street,eyeing telltale boards,listening to the outcries of the traders,walking up a flight of stairs to a row of shops selling shares,buying some. I have held £2000 in my hot little hands for three years trying to buy shares in UK.To no avail.It felt less like a conspiracy and more like utter indifference to the small investor evinced b y a clique of overprivileged public schoolboys.OK,it is a conspiracy.Why?

  • 23. Davie

    (30 December 2012, 03:39PM)  Complain about this comment

    Trevor - with £2000 (actually, with £1000) and a bank account and broadband connection you can open an account with iDealing.com and for under £10 per trade - not as low cost as some US online dealing platforms, but not bad - plus a small annual fee to have 'real-time' data you can time your ins and outs to the second. The worst I have done is to see an investment gradually halved over a few months, always expecting a reversal in the trend. The best I've done has included a 105% profit in a a day and somehow turning £1100 in £3400 within the space of two weeks last month (then, of course, you ask yourself - why didn't I do that with £110,000 instead?). On the main topic: I do also use an IFA, one who has never charged commission only fees, for pension fund investments. I also use a Capital Investment managed account with HBOS which may have associated fees but has consistently outperformed the market by a very high margin. Spreading the risk, spreading the rewards.

  • 24. Jonathan

    (24 January 2013, 01:53PM)  Complain about this comment

    Trader (20) - As a newbie who has recently started out and is being overwhelmed but the volume of information available. It is very hard to pick your way through this and try to determine people's motivations.

    Like it has been said in earlier comments there is usually a sales motive behind the information. Can you suggest some of the fantastic financial websites that are out there for someone like myself who is just getting started.

  • 25. Joe

    (18 February 2013, 06:53PM)  Complain about this comment

    I believe if you are wondering where you pension will come from? Or an investment that potentionally could well be life changing 10 years from now. Try looking on the lse for the new african version of easyjet called "fastjet" . They currently have big debts admittedly, however that is only due from taking over company fly540 after they fell into liquidation. They recently joined the stock market late last year, with 3planes current, but plan to have 18by this year ending. And they are planning expansion all over africa. Do your research people. Africa economy is starting to growin vast. Current share price 3.1 pence. Have a look, this could be one penny share seriosuly thinking about with HUGE potention. Now is the right time! I have £5300 invensed. Cheers

  • 26. Roger

    (22 March 2013, 03:16PM)  Complain about this comment

    Two and a half minutes to give 10 seconds worth of advice

  • 27. Al

    (23 April 2013, 01:02PM)  Complain about this comment

    I don't use fund managers because I like to make my own mistakes. All the same the stock market is scary. My best investment so far has been in Stockopedia, a system which allows me to see at a glance the current fundamentals of a listed company. I feel much more secure when I know a company consistently makes a profit, cash, and has safe investment ratios. Maybe there are other systems available that are as good (I have no links to S). The main, scary problem I see is the wild swings in share prices, often unrelated to company prospects. I blame zombie investors such as ETFs, and momentum trading, both of which invest by formula, not by company prospects. Capital gains tax should be tapered by time invested to stop people betting on shares like racehorses. Steadier share prices would encourage more people to invest because it would not be quite so much of a jungle. In fact, that is probably why people invest in funds:- because they seem steadier and more predictable.

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