What is low cost but charges a fortune?

Fairness. Openness. Clarity. Buzzwords all. Buzzwords used frequently to describes the many facets of our industry.

Cost is a topic that is also frequently commented upon by the great and the good; cost in terms of both adviser remuneration but also vehemently in terms of investment funds. Active managers are often viewed as robbers, to put it kindly; eroding the long term wealth appreciation of their clients and certainly not offering the “bang for buck” that is promised. The biggest target for this ire is the Multi-Manager, with many often exceeding 2.5% in terms of ongoing annual charge.

Because of this, it is often commented that active fund management is poor value and therefore any opportunity to reduce the cost of investing for the client is a positive. Passive investing has become more and more popular amongst advisers, with managed portfolios, mapped to a certain client risk category and killing two proverbial birds with one stone. A manager that uses a wholly passive approach must be cheaper than its active counterpart, right? Right?

TCF Investments have been brought to my one-eyed attention for claiming to deliver something that they are quite plainly not. For the uninformed, they “offer a range of low cost, well diversified, risk graded passive portfolios”. Furthermore, they believe in disclosing “all the costs of running our funds” and “there should be no ‘unknown unknowns’ inside our portfolios”. Sounds good, nay great. So what are the costs?

The website cites their low cost approach, but does not give any indication of their costs. The published fund factsheet (which I was unable to find on the website incidentally) also has a distinct lack of charges. We have definite consistency, but what about transparency and fairness? So in the pursuit of information, I contact TCF and am told that the TER is between 0.8% and 1.0%, but this again shows a distinct lack of transparency. If the fund group in question cannot advise me of their charging structure, then who can I rely upon? In a word, Morningstar.

To my absolute amazement (and this is backed up by the data supplied to me by various platforms) the TCF fund range are charged as follows:

 

NameIMA SectorKIID Ongoing Charge
Total Clarity Cautious Growth A AccMixed Investment 20-60% Shares2.63
Total Clarity Defensive A AccMixed Investment 20-60% Shares3.79
Total Clarity Diversified Balanced A AccMixed Investment 40-85% Shares1.86
Total Clarity Diversified Lg Trm Gr AFlexible Investment2.87

 

Now those who have interacted with me may guffaw at the next statement, but I am entirely agnostic when it comes to investments; I am neither pro-active, nor pro-passive. I simply have the time, experience and resource to review the marketplace in order to select what I believe to be the best investment choice for my investment process. What I cannot abide is the rhetoric that comes from certain parties which portrays one camp or the other to be what it is plainly not. This is happening in the whiter than white, post RDR low cost passive universe and let’s be perfectly honest, if it was an active fund manager or product provider who were pulling this kind of stunt, the industry would be all over them like a rash.

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2 thoughts on “What is low cost but charges a fortune?

  • There are some good points raised in this post.

    The substantive one is about the Total Clarity fund costs and data posted.

    The funds were launched in 2010 with capped TERs of 0.8% pa. TCF Fund Managers were the fund manager but not the ACD.

    The administration and ACD functions were outsourced (as is common with smaller fund groups). The fund manager subsidised the fund costs to ensure they achieved the 0.8% target. The details of this was in the fund prospectus.

    Following the Arch Cru issue (with a different ACD) a number of outsourced ACD providers reviewed their arrangements with a number exiting the markets. Technically the ACD owns the fund and publishes the marketing material, ensures compliance etc.

    The former ACD decided to withdraw from offering services to the funds and so a new ACD was sought.

    These new arrangements are now in place and the prospectus has been changed to reflect this. There is a new ACD and a new sponsor. All of these changes have been communicated to investors as required by the FCA.

    The current TER is being accrued by the fund accountants on a daily basis with a range of around 0.6 – 1.0%pa (it varies day to day with fund flows / market values). The fund accountant has to estimate the costs for the full future accounting period and accrue these daily. All funds do this. This means that they never know what the current precise TER is, but can only publish it at the end of the period once all costs are finalised and fund values known.. All TERs are therefore historic. It is expected that the TERs for the current period will be 0.8%, but to make sure I didn’t mislead Cyclopean View I shared (on twitter in 140 characters) how it works, the current range and the expected outcome. Perhaps I should have found a better medium than twitter – apologies if I have confused anyone.

    An investor in the funds today, of which I am one of the biggest, is paying a TER very close to 0.8%. This includes all the costs of TCF Fund Managers and the ACD, Fund Accountant and the underlying funds (something which not everyone does!).

    There is no stunt being pulled.

    The secondary point about who to trust with data is worth a small comment. This week we checked the fund asset allocations as reported on a number of data provider websites – three of four were correct one was massively wrong. There appears to be no explanation of why this was other than error somewhere in the data provision chain. Asset allocation breakdowns are often incorrect as it seems are TERs sometimes.

    Reply
  • There are some good points raised in this post.

    The substantive one is about the Total Clarity fund costs and data posted.

    The funds were launched in 2010 with capped TERs of 0.8% pa. TCF Fund Managers were the fund manager but not the ACD.

    The administration and ACD functions were outsourced (as is common with smaller fund groups). The fund manager subsidised the fund costs to ensure they achieved the 0.8% target. The details of this was in the fund prospectus.

    Following the Arch Cru issue (with a different ACD) a number of outsourced ACD providers reviewed their arrangements with a number exiting the markets. Technically the ACD owns the fund and publishes the marketing material, ensures compliance etc.

    The former ACD decided to withdraw from offering services to the funds and so a new ACD was sought.

    These new arrangements are now in place and the prospectus has been changed to reflect this. There is a new ACD and a new sponsor. All of these changes have been communicated to investors as required by the FCA.

    The current TER is being accrued by the fund accountants on a daily basis with a range of around 0.6 – 1.0%pa (it varies day to day with fund flows / market values). The fund accountant has to estimate the costs for the full future accounting period and accrue these daily. All funds do this. This means that they never know what the current precise TER is, but can only publish it at the end of the period once all costs are finalised and fund values known.. All TERs are therefore historic. It is expected that the TERs for the current period will be 0.8%, but to make sure I didn’t mislead Cyclopean View I shared (on twitter in 140 characters) how it works, the current range and the expected outcome. Perhaps I should have found a better medium than twitter – apologies if I have confused anyone.

    An investor in the funds today, of which I am one of the biggest, is paying a TER very close to 0.8%. This includes all the costs of TCF Fund Managers and the ACD, Fund Accountant and the underlying funds (something which not everyone does!).

    There is no stunt being pulled.

    The secondary point about who to trust with data is worth a small comment. This week we checked the fund asset allocations as reported on a number of data provider websites – three of four were correct one was massively wrong. There appears to be no explanation of why this was other than error somewhere in the data provision chain. Asset allocation breakdowns are often incorrect as it seems are TERs sometimes.

    Reply

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