Costs And Charges Schedules


Dear Friend

COSTS AND CHARGES SCHEDULES

DE LA RUE PLC

PROFESSIONAL INDEMNITY INSURANCE

COFFEE

WOODFORD TROUBLES CONTINUE

WILLS – WATCH-OUT!

TAX ENQUIRIES

WATCH-OUT – SCAM ALERT

FTSE100 & FTSE250 RESHUFFLE

RISK WARNING

Some more volatility hot on the heels of my last missive… but things again recovering pretty thoroughly and quickly.  It makes taking decisions very hard and I am sure many prospective investors (or those who exited) are wondering if they missed the best chance to buy some bargains that they will have seen for many years now.  If you were invested – did you add some more funds in March, April or May?  As before, it can be dangerous times to change horses – you don’t want to find you sold on a bad day and then reinvested when the funds arrived with your new manager 20% higher a month later…

COSTS AND CHARGES SCHEDULES

I have spoken before about these stupid things – well intentioned by naïve bureaucrats within the EU (though possibly formulated in London…) but not helping anyone to make the right decisions with their finances.  They are based on hypotheticals which may or may not change and indeed, as we have found, no transactions by the manager (even when buying or selling something was/is the right thing to do) gives the impression of being ‘cheaper’.  We have also found that in certain scenarios, the formulae we have to apply don’t work very well – for example, if a percentage is applied to a portfolio’s average daily value then adding a chunky subscription and incurring brokerage on the purchase of investments gives the impression of really high overall charges on the otherwise small average for the year. 

One of our clients (an engineer!) even analysed the latest figures and calculated that based on his actual charges paid (so management fees and the brokerage on actual transactions over the year), they were far lower than the arbitrary percentages which had been applied based upon a fair assessment of actual typical regular activity and so on.  Was anything any different?  No.  What did that prove – that we manage the investments with constant oversight but we don’t buy or sell ‘just for the sake of it’ – as at the end of the day, we have our clients’ overall best interests at heart as they are our own short and long term ones and cutting costs we all suffer is one of those objectives too.

These statements are not helpful and not all advisory firms have to issue them (a stupid anomaly in the first place and the same with the ‘10% letters) and they don’t encourage investors to have mature conversations with their advisers about the whole field of their costs they must pay, just as with the inane letters telling investors their portfolios have ‘dropped by 10%’.  I’d scrap both regulations if I could.  Indeed, we now read that some of the cheap automated services which have been sending computer alerts when investment values plunged are the ones from which more investors have been encashing as so many were frightened by the alerts to sell-up, in knee-jerk reaction.  I am pleased to say that we had hardly any liquidations or withdrawals during the awful times – we did our best to guide and encourage everyone, especially if anyone needed access to funds.  How much was that worth to them and their total capital – 5%? 10%? 15%? 25%?  So to how many years’ charges is that equivalent?  And that’s all in our service – for which as a general average we receive roughly 1%pa for our part of the job of management, liaison and ongoing advice in regard to the investments and their suitability for the client – and being there at all times to do our best to address queries pretty much about anything and without the charging clock being switched-on either.

DE LA RUE PLC

I mentioned this one recently.  We have about 400,000 shares across some of our ISA, Portfolio and Pension strategies.  They fell heavily with the Pandemic and broached 42p in May.  However, now the Company has reported more encouraging results and projections and the shares quadrupled to £1.72!  We did top-up as they plummeted and any new cash subscribed to our accounts will have been considered for investment.  However, the Company is now offering the opportunity for us to buy extra shares at only £1.10, to raise £100million to recapitalise.  Where we have cash available, we shall apply for as many as we can.  However if your account with us has them, then there could be wisdom in making sure of your allocation by sending us some funds very quickly, if you have spare cash elsewhere. Anything will do!  We can’t enter into individual conversations on whether your account can or can’t, I regret as remote working and the lack of time doesn’t give us the resource to respond but if it is a featured stock in your account (check your 5 April report) and you have some spare cash, sending-in a subscription (if you can, eg new ISA allowance for the year and so on) may just help maximise the special opportunity.  We have a guaranteed allocation and a chance to buy a few more on top.  Time is very limited however.  There aren’t many things which give you a 45% instant profit potential (at present prices) are there!

This follows the recent Costain and Stobart Group issues – all raising the same sum of £100million curiously…  Costain was at 60p, now trading at 80p and we did as much as we could.  Stobart’s issue is at only 40p.

PROFESSIONAL INDEMNITY INSURANCE

If you advise people on their finances, it is a regulatory obligation to have professional indemnity insurance. The application is a laborious process every year now as the risks need assessing very carefully and the applicant advisory firm must demonstrate to the insurer there is the management control and competence to best avoid claims – or as many as possible.  However, costs have rocketed as the industry has been beset with claims against it and our own cover now costs approaching six figures (pension transfers from salary schemes are the biggest risk area).  Fortunately, after many days’ work on compiling our application and providing all the necessary evidence of how we do things, with full examples of reports etc, our renewal sailed-through.  Qualifications, experience and a great track record at last stand for something.

However, over 500 advisory firms have had special intervention by the FCA as the advisory firms cannot find cover at any price.  Do the clients of those firms realise that?  There was a case recently where a number of claims for deficient pension transfer advice arose where the clients were not insured because the firm had not been regulated as a consequence!  There is another issue which the Regulator seems oblivious to the issues too.  If an advisory firm closes, then it does not have to buy ‘run-off’ cover, so as insurance only operates whilst the policy is current (that year) any complaint cases afterwards are unlikely to be indemnified.  Past failings have also shown that if advisers have strayed into advice areas for which they were not authorised (however ‘innocently’) then insurers will not cover that too and as we found with a Barnstaple defaulting firm, Devonshire Asset Management, if the complaint is not passed to the insurer as soon as it arises, then they are unlikely to accept it later (though in that instance the firm was not regulated to sell the related financial product anyway).  If your adviser is not us, do you check this sort of thing?

COFFEE

Are you aware that the price of raw coffee has been at record lows of late, having continued plummeting?  Farmers will be going to the wall as it will be wholly uneconomic to produce it and whilst global demand has risen significantly, there’s too much of it.  It is a staple product and at some point the market will rebalance and at levels rather higher than these.  Maybe to diversify your investments, having some of these types of commodities is not unwise and they are uncorrelated to share markets – and there are ETFs out there you can buy.  The Coffee ETF is not much above a tenth of its 2011 high for example.

WOODFORD TROUBLES CONTINUE

We never had any of Mr Woodford’s investments but have been buying his old Investment Trust since and now hold 6million shares.  They are up over 50% from their low though we didn’t buy them all at that price sadly but we did chase them down there!

However, we criticised some of the things Mr Woodford had been doing – before the troubles were terminal (though we understand why investors and advisers could have had holdings with him and the past was much better) but we have also criticised even more how the liquidators have done their best, it seems, to make a bad job even worse.

Last week it was announced that Link’s agreed discounted sale of a £224million portfolio of unquoted healthcare investments sold on 5 June has been majorly turned-over by 18 June and on-sold at a significant premium to what was paid.  Recently Link also sold a chunk of the old Investment Trust at a give-away price too and it still has another chunk to go (and that overhang has held back the price on the market).

Why were investors not given the opportunity, say, of being allocated shares in a new investment pot, either including the old Investment Trust shares or two pots?  That way, no losses would have been realised and the underlying investors could have decided when they wanted to sell, either immediately or at their choice later (as Link is a registrar so it would have been easy simply to add new lines to the existing register holdings).  Indeed, they could also have done this with the main chunks of funds rather than liquidating all the assets in a fire sale at the end of last year/early this year when the market knew exactly what was going to be coming along so stacked the prices against it.

This would still have closed-down the old funds (and in a timely fashion) but would have given the control of what happened next over to the underlying investors.  Instead, they really have been sold down the river and adding insult to injury, without the cash available of late to reinvest at bargain-basement levels too.  And don’t forget too – there will have been a feeding frenzy no doubt of corporate costs and liquidation fees suffered by the poor investors as well.

WILLS – WATCH-OUT!

For some years now, there has been a rising incidence of challenges to Wills.  The rules are being rewritten by court cases it seems so watch-out!  It really pays to seek professional guidance if you have prospective problems in your family, etc if you want your wishes to be fulfilled.  We have now written well over four figures of Will since we added this valuable service to our armoury in 2000 and have discharged numerous estates too and this activity is destined to grow exponentially as the value we can add becomes recognised more and more by clients and non-clients alike.  (Contrary to received wisdom you don’t need a lawyer to write a Will or discharge an Estate and very often these days, what is more important to the law is specialist investment knowledge and experience instead).  This was an interesting case recently where the Will challenge succeeded:- https://www.ftadviser.com/pensions/2020/05/28/wills-declared-invalid-in-court-over-mental-health-concerns/?page=2  And don’t forget either, using lawyers and going to Court is a very expensive process where the costs have to be paid whatever happens.

TAX ENQUIRIES

And just as you thought it was safe to breathe, the Taxman is resuming his enquiries into those with dubious or curious tax affairs… https://www.financialplanningtoday.co.uk/index.php?option=com_k2&view=item&id=11635:warning-that-hmrc-is-re-starting-tax-probes&Itemid=468&utm_source=newsletter_2178&utm_medium=email&utm_campaign=losses-grow-at-financial-planning-arm-fca-defers-cpd-origo-expansion  It is amazing how frequently we still come across cases of undeclared income etc – not necessarily purposefully but a second property where the income hasn’t been declared or whatever – if you don’t come clean, the Taxman can be very harsh with his penalties!  We are here to help if you have a problem or could have a problem if you don’t seek help!  Our much respected and very competitively-priced Tax and Accountancy Department could be your salvation!

WATCH-OUT – SCAM ALERT

A new breed of promotion has reared its head, often heavily pushed on social media, etc.  This is a firm which ‘sounds like’ financial advice but isn’t regulated and all they do is accumulate leads and sell them-on to advisory firms – or of course sometimes some of them are there only to feed the scammers who then try to push unregulated investments  – if indeed these scams can actually be called ‘investments’ rather than outright frauds.

FTSE100 & FTSE250 RESHUFFLE

Extreme volatility in markets creates some significant changes in the fortunes of quoted companies.  This can result in some giant movements in the values of companies and thus at the quarterly review meetings, some big names are demoted from what had been a high level in one index into a rather low level in the one below.  What this does is rip-off points from the higher index (and often points the company never added on the way up).  It can also mean that an over-reaction by the market can see a rapid rebound in those demoted companies so that they are soon promoted again and often reasonably high up the upper index again – but by the time they are readmitted, they have added all those points back on the lower index!  Whilst life is never quite as simple as this, it is likely to mean the FTSE250 (the companies from size 101-350) is likely to out-perform the FTSE100 (which is dominated by the largest companies in the FTSE100 anyway).  Most cheap ‘index-trackers’ track the bigger companies – you have been warned!

RISK WARNING

Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.

To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!

If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrate our 35th anniversary in 2020 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.

Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.

My best wishes

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB

Chartered Wealth Manager

Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers