Weekend press review: how safe is client money?

by | Jun 4, 2018

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The Financial Times has news for grumpy baby boomers who think that the Resolution Foundation’s recent call for a universal £25,000 handout to millennials is going a bit too far. No fewer than 28% of all millennials, it says, profess to being afraid of going bankrupt to the point where they can’t even afford even the basics of daily life.
Or so says a new survey of B, the digital banking arm of bank CYBG, which says that 14% of the 2,000 millennials it interviewed were frightened that they were being pulled into a spending addiction by the persuasive power of technology media. (What is CYBG, you ask? You old fogeys probably still call it the Clydesdale and Yorkshire Bank, and it’s currently bidding £4 billion for Virgin Money. Honestly, don’t you people even read the papers?)

Anyway, the FT reports that B’s group innovation director Helen Page isn’t ducking the fact that it’s a problem that the boomers haven’t caused. People no longer save up for purchases, she says – preferring instead to click the buy button and worry later. “This approach shores up stress and anxiety,” says Page. Before getting round to the expected rabbit punch on the oldies. “More should be done to educate young adults, so that they feel better equipped to manage big life moments like starting a new job and adopting a positive attitude towards money.”

So that’s the blame properly attributed to us wrinklies, then. But the debt management provider PayPlan (don’t even ask us what that is?) puts some numbers on the table with a claim that the average 18-24 year old owes £8,862 in unsecured debt, rising to £12,189 for 25-34 year olds. The arguments presented by the FT’s article are indeed plausible, and merit more attention than we should properly explore here. (Read the article.) But the example of a couple who find it cheaper to commute from Mallorca than to travel Britain by train from London is a proper attention-grabber. Is it not?
Money Mail features a broadside from Jeff Prestridge about the contentious refusal by Invesco Perpetual Enhanced Income to scale back its charges to investors, at a time when other fund houses are toeing the FCA’s line and shaving their fees.
In the fund’s accounts to September 2017, he says, Invesco earned fees totalling £2.036 million in the form of a management charge and then a performance fee. The first was 1.22% (of which 0.93% went to Invesco) and the second was 0.93%, says Prestridge. Totalling a 1.86% charge on investors. “Excessive on any level,” he fulminates. Especially since the fund had been on course for a reduced management fee of 0.77% before the managers decided to back away from it.
It gets complicated from here on, but the important part is that the 0.77% fee is still on the table – but that Invesco has called a general meeting at which Prestridge says it will use its hefty holding to force a somewhat fatter remuneration.
But before we start feeling too aggrieved, perhaps we should consider Prestridge’s concession that the board have really been doing rather a good job with the fund, which aims to secure up to 6% income on an essentially defensive portfolio. And that its five year performance of 53% has tidily outgunned the FTSE All Share Index, which grew by just 45%. The latest year’s absolute performance was in the red by 4.4%, he says, which might just explain why the cut in the fund’s fees has been proposed. But as things stand, we are left with what looks like an undignified stand-off.

Meanwhile, the MoS fund focus looks at the Sanlam Global High Quality fund and the high conviction approach of manager Pieter Fourie. It explains the investment approach, explaining that there is currently 16% in cash ( as the manager is reported as finding it difficult to find value at the moment). Aside from cash, the portfolio holds just 30 stocks – which are capital light and cash generative – and where the manager sees value at attractive prices.

How do you know when to ditch a failing fund manager? That’s the question being asked by Sam Brodbeck in the Sunday Telegraph. He consults a couple of investment professionals for their tips on how to spot signs of trouble. We hardly need to tell you that right in the line of fire is Neil Woodford, whose recent underperformance has left many investors concerned. He also mentions other funds, including the £19bn Standard Life Gars, as well as other feted managers such as Invesco Perpetual’s Mark Barnett and Fidelity’s Michael Clark who have also disappointed investors. Advice ranges from looking to see if the approach is more closely mirroring a benchmark, being more subjective in case the underperformance is due to growth/value anomalies, or managers explaining their underperformance by saying “the market is wrong”. Of course, it’s the long term performance which really matters. The fact remains that most managers will have times when they are underperforming, yet reading articles like this is quite likely to concern clients.

On the theme of articles which might concern advisers’ clients, the lead story in the Sunday Times Money section is certainly going to give cause for concern to many. It focuses on the situation for clients of collapsed stockbroking firm Beaufort Securities, where client money will be used to help pay the estimated £55mbill of the company’s administrator PWC. Ali Hussein reports that despite being ringfenced, PWC can do this because of a rule introduced in 2011 following the collapse of Lehman Bros, which allows administrators to use ringfenced client funds to cover the costs of distributing the assets of an insolvent business if it has no money left. In the case of Beaufort, apparently 700 people with portfolios in excess of £150,000 have been told by PWC that up to 40% of their portfolio may go towards fees. With the rise in the use of investment platforms and nominee names for holding investments, this is bound to cause worries and likely to generate questions from clients about the security of the companies which operate the platforms or accounts where their money is invested. Beaufort Securities investors will be compensated by FSCS for losses as a result of the administrator’s fees, but as the article explains, it isn’t clear at the moment how charges will be split between clients – also the £50,000 limit applies. The article suggests that readers who are concerned about this happening to them might want to consider not holding more than £50k with any one investment broker or transferring to a larger broker – HL is mentioned – as and we quote “ these companies are considered less likely to go bust”. One thing’s for sure, it’s important that advisers make clients aware of this and that it forms a core part of their due diligence process when selecting where to house clients’ assets in the safest and most effective ways

In his usual Personal Account column, Ian Cowie highlights the example of how M&S almost fell out of the FTSE 100 last week- and still looks vulnerable to relegation to the FTSE 250 later this year. The point he makes is that investors need a stake in the future not the past – and that active stock selection can not only help by spotting the next big thing first, but also in avoiding the losers. Funds which are mentioned are Fidelity Special Sits as well as a collective mention of “dozens of investment trusts” which have a history which pre-dates the launch of the FTSE 100 and which can boast 30 years or more of rising dividends. His suggestion that tracker funds are not a “risk free panacea” will resonate with some but certainly not all, as the quest for obtaining good performance at reasonable cost will continue for a long time to come.

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