How much am I paying Bestinvest for investment management?

Question
I have approximately £300,000 being " managed " by Bestinvest. While I know that I am being charged 1% (less refunded commission ) plus VAT, I would like to have a clearer understanding of the total charges involved e.g. including those being deducted within the funds themselves.

When I ask the question I just get told that it's approximately 0.6%/0.7% on top of Bestinvest's charges but I don't have a lot of confidence in this.

In addition, while I can see the "adviser charges" on each buying or selling transaction, I have to add them up myself in order to get a total for that element of the charges. Surely in this current era it should be possible to get a complete picture of costs without a lot of hassle?

Could you give me any suggestions as to how best to put it to Bestinvest in order to get the clarity I would like?

I should explain that I am interested because I am looking at how best to invest a further amount of money and am considering going to a different company to focus more directly on shares. I would therefore like to be able to have some comparison of the different costs involved in both approaches. In that context I wonder if you have any experience of Cheviot Asset Management Company? ( also know as Quilter Cheviot )

Many thanks for any help you can give me. Answer
Bestinvest has a range of ‘managed’ services these days, but it sounds as though you are either using its ‘Managed Portfolio’ or ‘Investment Management’ (option 2).services

The Managed Portfolio Service seems to largely invest in unit trusts and oeics held on Bestinvest’s platform and charges 1% a year plus VAT. There are no dealing charges.

The Investment Management Service (option 2) also invests in funds and charges 1% a year plus VAT, but adds dealing charges on top and may also favour investment trusts. The dealing charges are potentially quite steep at 0.4%, with a minimum of £30 and maximum of £100 per transaction.

So based on a £300,000 portfolio you are paying Bestinvest around £3,600 a year including VAT. And if the Investment Management Service then assuming 10 trades a year you could be paying up to an extra £1,000 on top in dealing charges – ouch.

In addition to the above any underlying funds held will have annual charges and the figure for each fund you need to look or ask for is the ‘total expense ratio’ or ‘ongoing charge’ – this includes both the manager’s annual charge plus other costs paid by the fund such as custodian and auditor fees.

The underlying funds (unit trusts/oeics) will either be ‘clean’ versions which have no commissions or platform payments to Bestinvest built in to annual charges, or ‘retail’ versions which include these payments - some (or all) of which Bestinvest may rebate to you. Bestinvest’s own terms and conditions are a bit woolly as it suggests clean versions were being used from 1 January 2013 yet the funds listed on its website are still mostly retail versions. Nevertheless, like all platforms and discount brokers it will have to move to clean versions for new business from 6 April 2014.

As a very general rule of thumb, clean actively managed fund versions tend to have total expense ratios of around 0.75% to 1% while the equivalent retail versions will be around 1.5% to 1.75%. Tracker funds are usually somewhat lower at 0.5% or less and tend to only offer clean versions.

So, I would ask Bestinvest for the total annual charges on your portfolio including their management fee and the underlying fund total expense ratios, net of any commission rebates - expressed as a percentage. And, if you use the Investment Management Service then also ask for the total sum you have paid in dealing fees over the last year.

Discretionary investment managers who prefer shares to funds may be cheaper overall since you won’t be paying annual fees on underlying funds. However, you need to be very careful as success will depend on the discretionary manager’s stock picking abilities and in my experience results can be very mixed. Also bear in mind that they are unlikely to have the necessary skills or experience to pick stocks in very small companies or overseas, so they may either end up using funds for these areas or ignore them altogether – and the latter isn’t a very satisfactory option.

Hope this provides some help and apologies for the slow reply; I’ve been rather tied up in recent months preparing the launch of Candid Financial Advice.

Read this Q and A at http://www.candidmoney.com/askjustin/932/how-much-am-i-paying-bestinvest-for-investment-management

Neil Woodford to depart Invesco Perpetual

Following today's surprise announcement, should investors switch their money elsewhere?.

If, like me, you are one of the many investors with money in a fund run by Invesco Perpetual’s Neil Woodford, then you may be as surprised as I was to see today’s announcement that he will leave the firm on 29 April next year.

It seems Mr Woodford wants to set up his own fund management firm and, after 25 years at Invesco Perpetual, it seems quite a natural decision. However, it begs the very obvious question: if you have money invested in one of the funds he manages what should you do? So let’s take a look.

Which funds are affected?

Neil Woodford currently manages the following four funds:

FundSize (£million)

Invesco Perpetual High Income 13,971.64

Invesco Perpetual Income 10,634.09

Edinburgh Investment Trust 1,175.60

SJP UK High Income 1,230.00

And also manages the equities portion of these two funds:

Invesco Perpetual Monthly Income 3,834.50

Invesco Perpetual Distribution 2,604.98

Will Neil Woodford continue running these funds until he leaves?

Invesco Perpetual says Mr Woodford will remain responsible for the High Income and Income funds until he departs, but that his successor for these two funds, Mark Barnett, will work alongside during a transition period.

As for the Edinburgh Investment Trust and SJP UK High Income funds, it’s too soon to say since these are run by external companies who outsource the management to Mr Woodford.

And the management of his portion of the Monthly Income and Distribution funds will be passed with immediate effect to Ciaran Mallon.

Are his replacements up to the job?

Mark Barnett has stellar track record spanning over 13 years at Invesco Perpetual, in fact better than Neil Woodford’s of late. However, he currently only manages around £1.4 billion across four funds, versus Mr Woodford’s £24.6 billion across the High Income and Income funds.

Assuming responsibility for such a significantly larger sum of money could prove very challenging for Mr Barnett. He will likely need to need to invest in more stocks and place larger ‘big picture’ bets than he is used to in order to add meaningful value to the funds. For example, Mr Woodford’s High Income and Income funds hold 118 and 127 companies respectively, with the 10 largest holdings accounting for 57% of each fund. By contrast, Mr Barnett’s UK Strategic Income fund invests in 74 companies with the 10 largest holdings comprising just 40% if the fund.

Ciaran Mallon also has an impressive track record over the time he has managed funds at Invesco Perpetual and in many ways he faces a far less daunting task than Mark Barnett. He’s assuming responsibility for far less money and his impact will be partially obscured by the funds having fixed interest investments managed by others. Bearing this in mind I think the chances are he will do a perfectly adequate to very good job.

Should you switch elsewhere?

Since it is generally so straightforward and cheap to switch funds these days, especially using platforms, I think there is a strong argument for investors in the Invesco Perpetual High Income and Income funds to consider moving to alternatives over the coming months. While I sincerely hope Mr Barnett succeeds when he assumes full control of the funds next April, there seems little reason to run the risk that he won’t when there are proven equity income managers elsewhere running far more manageable sized pots of money.

I see little reason to move away from the Monthly Income and Distribution funds as things currently stand.

What alternatives to the High Income and Income funds might be considered?

As a starting point I think the Cazenove UK Equity Income, Fidelity Enhanced Income and Threadneedle UK Equity Income funds are all well worth a look.

As an interesting aside, Neil Woodford’s announcement might also shift the balance of power towards those fund platforms who are currently trying to negotiate extra cheap ‘super clean’ fund versions when they next sit down with Invesco Perpetual.

Read this article at http://www.candidmoney.com/articles/276/neil-woodford-to-depart-invesco-perpetual

The launch of Candid Financial Advice

I am absolutely delighted to announce the launch of Candid Financial Advice - an independent adviser intent on bringing down the cost of advice..

When I first launched Candid Money around four years ago my aim was very simple – to provide impartial guidance that helps savers and investors make better decisions with their money. And, over one million visitors later, I hope this site has gone some way towards achieving that.

However, one of the things I’ve learned along the way is that not everyone wants to go it alone. Many people either want, or need, the added comfort of a professional financial adviser to help them make the right choices and always act in their best interests.

Since such financial advisers seem to be thin on the ground, especially at a reasonable price, it seemed a logical next step for me to fill this gap. So I’ve been working flat out over the last six months to do just that - the fruit of my labours being Candid Financial Advice (www.candidfinancialadvice.com).

As you would expect, Candid Financial Advice has exactly the same values and ethos as Candid Money. But instead of guidance, it will offer first class advice and ongoing service – at a fraction of the usual cost charged by most other adviser firms.

Is Candid Financial Advice independent?

Yes. It is an independent adviser able to select the most appropriate products from the whole of the market. The business is also independently owned and run by myself and long time friend Ian Millward.

What areas can you advise on?

Candid Financial Advice can help with savings, investments, pensions, tax planning and protection. Common scenarios include reviewing existing pensions and investments to ensure they’re appropriate and cost effective, as well as investing new monies and optimising tax efficiency.

How can I be sure you’re impartial?

Good question. While many advisers proclaim to be independent and impartial, you’ll never usually know for sure. It’s not uncommon for advisers and financial providers to have quite cosy relationships that might influence advice.

Since total impartiality is fundamental to the Candid brand, Candid Financial Advice will never accept any hospitality, inducements or hidden fees from financial providers – the only source of revenue will be the fees paid by clients. As far as I know, no other financial adviser has to date made this commitment.

How much will advice cost?

Candid Financial Advice has a fully inclusive sliding fee for initial advice and service - capped at an absolute maximum of 1%. The exact level will obviously depend on the amount of work involved, but it normally decreases as the sum invested increases. By contrast many advisers routinely charge up to 3% or more and some bolt on extra ‘implementation fees’, so I believe Candid Financial Advice will prove significantly cheaper than the vast majority of other financial advisers.

And what about the investments, pensions and other products you recommend?

I’ve long believed that paying too much for investments, pensions and/or advice can greatly reduce the likelihood of success. Candid Financial Advice is therefore, unsurprisingly, brutal about keeping overall costs to a minimum, preferring low cost options wherever it makes sense to use them.

Does cutting costs mean cutting corners?

No, far from it. The truth is many advisers are content to pick up a handful of very profitable clients each month. My approach is to price high quality advice and service as competitively as possible to attract a large number of clients. We will then work harder, smarter and more efficiently to ensure the business makes a fair profit on much tighter margins. Since the business model relies on retaining clients long term and growing their investments, we have every incentive to do a great job.

What will happen to Candid Money?

For those of you who prefer to look after your own finances, please rest assured I remain fully committed to running both this site and Compare Fund Platforms. Above all else, I enjoy it.

So thank you for all the positive feedback and reader contributions that Candid Money has received to date. Please check out the new website www.candidfinancialadvice.com and don’t hesitate to get in touch if you think we can help you or someone you know.

Please note that when clicking the above links you will leave Candid Money, a financial guidance site not regulated by the Financial Conduct Authority, and go to Candid Financial Advice, a financial adviser that is authorised and regulated by the Financial Conduct Authority.

Read this article at http://www.candidmoney.com/articles/275/the-launch-of-candid-financial-advice

Royal Mail flotation summary

The financial story grabbing the headlines at the moment is the Royal Mail flotation, so let’s take a look. Might the shares be worth buying? And how best to do so? .

I should start by apologising for my lack of new articles recently - due to working flat out on a new business over the last few months. Launch is imminent, more news shortly...

Now, onto the Royal Mail share flotation.

What’s it all about?

The Government needs cash and selling off public assets like the Royal Mail offers a fairly straightforward way of raising some. It will be selling between 40.1% and 52.2% of its stake while giving a further 10% stake to Royal Mail staff. The issue price will be between £2.60 and £3.30 per share and if both the size and price of issue end up being at the midpoints the Government will raise around £1.33 billion after costs.

Will Royal Mail shares be a good bet for investors?

On the face of it yes, at least in the short term.

A simple measure used to assess whether a company’s share price seems good value is a price to earnings ratio, or P/E. Royal Mail’s initial P/E will be between 6.5 and 8.3 depending on launch price. This makes the shares appear quite cheap given a P/E of around 15 for the FTSE All Share as a whole. And UK Mail Group, a competitor of some sorts, has a P/E of around 24% at the time of writing.

And the Royal Mail has also pledged to pay a dividend of £133 million in July 2014 (equivalent to a full year dividend of £200 million), which would equate to an income yield of between 6.1% and 7.7% - again very attractive versus peers. Based on current earnings this appears to be a sustainable rate (it represents roughly half earnings).

But, of course, life is never that simple. There are risks. In the very short term expect lots of staff unrest and industrial action, as in private hands Royal Mail will look to aggressively cut costs. It will also find maintaining the Universal Service Obligation (in simple terms, delivering a letters six days a week to every UK address with uniform prices) a drag, especially in the face of falling letter volumes. Higher parcel volumes (thanks to Internet shoppers) could compensate, although Royal Mail faces stiff competition in this sector.

On balance, the shorter term outlook looks quite favourable thanks to a seemingly low issue price range and very attractive anticipated dividends. But moving forward a few years things could start to get choppier – and some of us will likely get the hump as the Universal Service Obligation is inevitably watered down.

How much can I invest?

Since the share price will not be known until after the application deadline, investment amounts are fixed as follows: £750, £1,000, £1,500, £2,000, £2,500, £3,000, £4,000, £5,000, £6,000, £7,000, £8,000, £9,000, £10,000, £15,000, £20,000, £25,000, £30,000, £35,000, £40,000, £45,000, £50,000 and £10,000 increments thereafter.

If oversubscribed, he the issue will be scaled back, so you may receive fewer shares (and of course invest less) than expected.

The Timescale

If you want to buy shares you’ll need to apply by 8 October. The share price and size of issue will be announced on 11 October and formal trading on the London Stock Exchange will commence 15 October.

How to buy

You can buy shares either via the Government’s own service or a third party stockbroker. Either way, there are no purchase costs nor stamp duty. However, the route you choose could have potentially big cost implications while you hold the shares and/or when you sell.

The Government

This service is provided by Equiniti and shares will be held in its nominee account unless you opt for a certificate. There is no option to hold within an ISA or pension. While there are no charges for holding the shares, the sting in the tail is potentially high charges when you come to sell when using the nominee account – whichever of the 4 options you use:

1. Sell online: 1% with a minimum £17.50.


2. Sell by phone helpline: 1% with a minimum £25.00.


3. Sell by phone automated service: 0.75% with a minimum £7.50.


4. Sell by post: 0.75% with a minimum £7.50.

However, even if you do buy via this route and face a potentially high charge for selling, all is not lost. You can transfer to another broker’s nominee account for £10, although this involves some paperwork, a wait of up to 2 weeks and potential fees charged the new broker.

If you opt for a share certificate you can sell through whoever you choose, but most brokers tend to charges upwards of £40-50 for this.

Other brokers

There is a long list of other brokers through whom you can buy the shares instead (see here). You won’t pay a fee to buy, but any usual account fees and dealing fees when selling will likely apply. In terms of pure cost, the one that stands out is x-o.co.uk, since there are no account fees and a dealing fee of just £5.95 to sell (at time of writing).

Can I buy within an ISA or SIPP?

Yes, provided you have an ISA or SIPP account with a participating stockbroker containing enough cash to fund the purchase by the 8 October deadline.

Read this article at http://www.candidmoney.com/articles/274/royal-mail-flotation-summary