Stock broker fees?

Purple1979

Evening all

I am not a regular user of this board but have a question I was wandering if anyone could help with, i will try to keep it short - a family member is currently exec of estate for his family member who did not have control over his affairs due to his mental capacity - his affairs were dealt with by a court appoited solicitor - we are currently awaiting details of all of his assetss from the solicitors (we believe there will be a subsantil sum as he was awarded compesation due to his medical stuff) we have today received details of the last years accounts which states stock broker fees of £7500 we are presuming as the family member had money that it was floated on the market?- for £7500 fees can anyone estimate how much money they are floating?

if anyone can help thanks!

cheerfulcat

Hi there,

I'm guessing that by " floated " you actually mean " invested ". I'm also assuming that due to the gentleman's mental condition the solicitor engaged a discretionary broker, who would have had complete control of the investment portfolio. In this case it is difficult to guess at the size of the portfolio as discretionary brokers' fees can be very high, and as they may be paid extra commission for trading, there may well be a temptation to over-trade, adding to the charges...all the same, I would expect the portfolio to be in the high five figure to low six figure bracket at the least, to justify such high fees.

Purple1979

cheers for that

Chrismaths

I would expect the portfolio to be in the high five figure to low six figure bracket at the least, to justify such high fee

Wow! how much do you think we charge? At "low six figures" (£100,000) that would be 7.5%! In reality, it's more like 1% - so £750,000, and for that size of portfolio, usually less.

If there is probate work involved, it's usually about £10 per line of stock.

High 5 figures, I wish!

cheerfulcat

Wow! how much do you think we charge?

I know how much discretionary brokers can charge - at £150 - £200 per hour it doesn't take long to chalk up a bill of £7500...about an average working week, in fact.

Chrismaths

But that's not what you said is it. You said:

discretionary brokers' fees can be very high, and as they may be paid extra commission for trading, there may well be a temptation to over-trade, adding to the charges

implying that it was to do with normal portfolio management. How else would you have drawn the conclusion:

I would expect the portfolio to be in the high five figure to low six figure bracket at the least, to justify such high fees.

Or were you just posting arbitrary figures, out by around a factor of 10?

I charge out my time at upto £200/hour, but it is very rare for me to work on that basis - I just manage money, like most discretionary managers. Hourly fees are only charged for services outside the discretionary management agreement. And I've never heard of a case where it has required a week of top level investment manager time!

Either this is an incredibly complex case that has required enormous amounts of time outside of managing a portfolio (unlikely - if there was that many billable hours going around do you think a lawyer would relinquish them?), or (more likely) it's a £700k - £1m portfolio.

cheerfulcat

Chrismaths wrote: »

But that's not what you said is it. You said:
implying that it was to do with normal portfolio management. How else would you have drawn the conclusion: Or were you just posting arbitrary figures, out by around a factor of 10?

It's exactly what I said, and discretionary brokers can and do charge hourly rates for portfolio management. The figure I gave was, as you can see in the quote you have posted, a minimum.

I charge out my time at upto £200/hour, but it is very rare for me to work on that basis - I just manage money, like most discretionary managers. Hourly fees are only charged for services outside the discretionary management agreement. And I've never heard of a case where it has required a week of top level investment manager time!

The exact amount of time involved to reach those fees is 37.5 hours. Are you saying that a broker would spend less time than that on a client's portfolio over a year?

Either this is an incredibly complex case that has required enormous amounts of time outside of managing a portfolio (unlikely - if there was that many billable hours going around do you think a lawyer would relinquish them?), or (more likely) it's a £700k - £1m portfolio.

As I said before, my speculative figure was a minimum.

Chrismaths

It's exactly what I said, and discretionary brokers can and do charge hourly rates for portfolio management. The figure I gave was, as you can see in the quote you have posted, a minimum.... The exact amount of time involved to reach those fees is 37.5 hours. Are you saying that a broker would spend less time than that on a client's portfolio over a year?

No I'm not saying that, I'm saying that clients don't get charged by the hour, they get charged a percentage. It is only for complex things outside of a discretionary management agreement that the client would get charged. In fact our Schedule of fees states that any fees outside of this would be subject to the client's agreement for services "outside of the discretionary management agreement" - so the length of time take to manage a portfolio is irrelevant.

I can safely say that they would never get charged an hourly fee for portfolio management.

And yes, I have more than 52 clients, so I spend (on average) less than a working week on each portfolio. But that is startlingly irrelevant as most of what an investment manager does is research investment ideas and monitor porfolios - and you can do more than one at once. That means I am spending 75% of my time dealing with investments that affect all my clients, and 25% of my time dealing with individual cases (for instance CGT considerations, special client requirements etc.)

The sort of things that incur hourly fees would be completely out of the ordinary - for instance a client asking me to analyse a private company he is thinking of buying.

As I said before, my speculative figure was a minimum.

- a very misleading one. 0 is also a minimum. Your figure implied that there would be clients of investment managers with less than £100k who would be charged £7500. Only if they went to a robbing financial adviser/bank.

dunstonh

Your figure implied that there would be clients of investment managers with less than £100k who would be charged £7500. Only if they went to a robbing financial adviser/bank.

Even tied agents wouldnt charge that much on an investment, although of course they cannot portfolio plan. The FSA average for IFAs is 1.8% on investment with 0.5% p.a. for servicing.

I know what we do is different to investment managers but the NMA IFA model is based on the typical investment manager model of 1% of new money and 0.5% p.a. of portfolio. An hourly rate on investments is not practical for either client or adviser/manager.

It should also be noted that even old model advisers taking the maximum dont get paid an explicit charge of 7.5%. That is a commission payment on indemnity terms based on the provider paying a chunk of the fund based trail commissions up front instead of ongoing. It isnt an explicit charge against the contract.

The figure in question does suggest 3/4 mill to 1 mill portfolio value. Although this may be lower if banks are involved as they typically charge a lot more.

JDinho

I agree with the two previous comments, using typical fee levels an estimation of the portfolio's value would be around £500,000+.

Could you not ask for the details of any probate valuation, which would provide the value at the date of death?

Chrismaths

It should also be noted that even old model advisers taking the maximum dont get paid an explicit charge of 7.5%

With the emphasis on explicit. An old style offshore bond could pay out that with no indemnity, but it would be "included" in the cost of the bond.

I nearly wrote "no one would get charged 7.5%", but then I thought of that and who might use it - a financial adviser on the rob or a tied NU agent perhaps. They offered a firm round here 9% upfront (no indemnity) for a certain level of business!