H-L introduces a Tracker Platform Charge

JohnRo

jamesd wrote: »

The initial charge that exceeds the tax it's claimed to be for. That provides a subsidy for existing holders. The subsidy per holder for each Pound purchased decreases as the total assets under management increases.

I'm not sure we are talking about the same thing

https://www.vanguard.co.uk/documents/inst/literature/protecting-investors-from-dilution.pdf

jamesd

Page 5 covers the main problem, pages 6 and 7 are examples that only work if there are no redemptions. The fixed 0.5% SDRT charge even when there is less than 0.5% SDRT to pay creates the issue.

The preset, fixed dilution levy, rather than one that varies based on the actual dilution, is also an issue but one I think is less significant.

I agree with the concept that existing investors should be completely unaffected. That also includes not benefiting from a charge that is higher than the actual cost.

The_Accumulator

Snowman, thanks very much for your reply. Very interesting development. I hope you're right.

gadgetmind

jamesd wrote: »

the steady buying and selling by some acting as an ongoing charge to them that subsidises the profits of the ones that don't sell.

You say "unethical" whereas I say "come to Daddy!"

The investing world is full of twitchers and switchers, which mostly represent a zero sum game, but if I can actually make some money from their mad gyrations, then who am I to complain?

jamesd

Yes, I think it's unethical to have an initial charge on investors that subsidises the reported performance of the fund and other investors. To me it also looks like deceptive performance reporting. Just as if I was to have a fund that charged 10% initial charge and used that to add 1% a year to the bid to bid reported performance over subsequent years until I closed the fund.

SnowMan

The_Accumulator wrote: »

Snowman, thanks very much for your reply. Very interesting development. I hope you're right.

You are very welcome.

I was trying to think the HSBC logic through again.

It says in the New Model Adviser article

The bank said it was currently speaking to all the major UK platforms over offering the new share classes.

So it would be a bit strange if HSBC didn't make the clean C unit class available on their own platform, the Global Investment Centre.

So then the question is will they have a platform fee for holding the C units. Given that they look they are making the C units available in November there would be quite a lot of practical problems with them bringing in a platform fee (at least now).

So I am hopeful that what they told me is correct.

I was also looking at the 0.05% registration fee which explains why although the amc is reducing by 0.15% on the funds the OCF (TER) is only going down by about 0.1%.

In the May 2011 HSBC Index Tracker Investment Funds prospectus it says on page 33

The ACD shall also be entitled to receive a fee out of the scheme property of 0.125% (plus VAT, if any) per annum of the Net Asset Value of the Fund, payable out of the scheme property, for providing registration services. However, currently the ACD is not charging a fee for registration.

So they are reducing the amc by 0.15% but starting to charge a 0.05% registration fee under this term, which is why the OCFs (TERs) are falling by around 0.1% rather than 0.15%.

Only one that looks odd is the HSBC Pacific Index fund where the new OCF is 0.36% but the old TER was 0.37% so pretty much no change, not sure what is going on there (edit: looks like in switching from TER to OCF they have 'found' an extra 0.09% in charges for the Pacific Index fund, so adding that to the 0.05% registration fee and it broadly cancels out the 0.15% reduction in AMC).

grey_gym_sock

jamesd wrote: »

Yes, I think it's unethical to have an initial charge on investors that subsidises the reported performance of the fund and other investors.

and equally unethical not to have a high enough initial charge to cover the costs of units being created and redeemed, so that long-term holders are subsidising short-term holders?

on this principle, are there any ethical funds at all?

or do we have the information to know if there are? perhaps vanguard are just more honest in telling us enough that we can tell they are unethical (according to your principles, at least). do we know that anybody else is any better?

gadgetmind

grey_gym_sock wrote: »

perhaps vanguard are just more honest in telling us enough

Yes, I have found Vanguard to be *very* open regards charges, securities lending, and much more. Ultimately, if someone finds some aspect of their approach not to their liking, then we live in a world full of options.

wriggly

jamesd wrote: »

Page 5 covers the main problem, pages 6 and 7 are examples that only work if there are no redemptions. The fixed 0.5% SDRT charge even when there is less than 0.5% SDRT to pay creates the issue.

All funds have to pay the 0.5% SDRT when buying affected UK shares. What you're missing is that even when the shares do not need to be bought, due to a matching fund unit seller, the fund still pays the 0.5% SDRT! That is, when there is a matching buy and sell, the fund can avoid other transaction costs, but it cannot avoid the SDRT. Hence, there is no issue of excess gains to the fund.

jamesd wrote: »

The preset, fixed dilution levy, rather than one that varies based on the actual dilution, is also an issue but one I think is less significant.

It is difficult to estimate an appropriate charge in advance, and a randomly varying charge set at the end of each day would be even worse. Vanguard sets a reasonable estimate, and changes it as funds grow and expenses change. For example, Vanguard has reduced the purchase and redemption levies for the Emerging Markets fund from 0.4% at launch to 0.25% now.

jamesd wrote: »

I agree with the concept that existing investors should be completely unaffected. That also includes not benefiting from a charge that is higher than the actual cost.

Then you should be singing the praises for Vanguard's approach.

SallyG

http://www.investmentfunds.org.uk/investor-centre/facts-about-funds/costs/

"Ongoing charges figure (OCF)
This gives the most accurate measure of what it costs to invest in a fund. The OCF is made up of the Annual Management Charge (AMC) and other operating costs. The AMC is levied by the Manager and is used to pay the investment manager, financial adviser, fund accountant, fund administrator and distributor. Other operating costs include the costs for other services paid for by the fund, such as the fees paid to the trustee (or depositary), custodian, auditor and regulator. "

Is this what they call doing good by stealth?