Woodford Concerns

masonic

ZingPowZing wrote: »

And, given the above, a possible explanation for Hargreaves Lansdown's terrible loyalty to Woodford (promoting his funds up to the day they were suspended).

As stated above, it isn't a possible explanation. HL had nothing to do with the transactions within WEIF.

There may be a more plausible explanation;

The most plausible explanation is the "exclusive discount" the fund offered to investors through HL, which allowed HL to attract more customers and charge more custody fees.

we're all ears.

Is there more than one of you?

[Deleted User]

masonic wrote: »

It doesn't matter whether funds are being promoted on a platform or not. Within all investment funds the fund manager bears costs for transactions within the fund and charges these to the fund. This is not a brokerage fee and it is not paid to the company where your investments are being held.

I understand when you say the fund manager bears costs, you mean his investors bear that transaction fee. Does the broker collect the transaction fee?

masonic

ZingPowZing wrote: »

I understand when you say the fund manager bears costs, you mean his investors bear that transaction fee. Does the broker collect the transaction fee?

All of the costs incurred by the fund manager are paid for using the assets held within the fund, so yes investors ultimately bear those costs. The fund manager will buy and sell assets using their own agents, brokers and dealers. These generally won't be the same as the company that sold you the investment.

If you, for example, buy WEIF at HL, then WEIF makes a load of trades that incur direct transaction costs, then HL wouldn't get a penny of those costs.

bowlhead99

ZingPowZing wrote: »

OldMusicGuy wrote:

There are no charges in the SIPP for fund transfers.

Not the question.

Well, your assertion was 'they do charge brokerage fees to their clients' and you were surprised that on that basis, they wouldn't also charge their own two funds who wished to move an investment from one to the other.

However, actually they don't charge a brokerage/ transaction fee to a client who wishes to redeem out of one fund such as WEIF and subscribe into another. Because they are not brokering any transaction on a market, simply passing on orders to WEIF's fund manager. The way they choose to be compensated is to simply levy an all-in percentage-based fee on the NAV of funds held for the time they are held.

So there is no reason to presume that they would charge an incremental fee to one of their funds who wants to dispose of its holding in WEIF and then a similar fee to one of their funds who chooses to invest in a holding of WEIF. They don't really go in for transaction based charging, rather percentage-based - on AUM or AUA.

Investors in a fund are exposed to transaction costs of the fund, but it is not HL that's getting those transaction costs as income (or at least, not getting them any more than normal if one fund reduces their investment in another OEIC as at a time that another increases).

The issue is: if two "house" funds "rebalance" by moving one investment from one to the other, is there a brokerage fee? I don't know, but would appreciate it if a HL spokesperson or other could clarify.

The issue is: you have come in all guns blazing with your 'suspicion' that they rolled the ownership of Woodford Fund from one of their managed funds to another managed fund and collected fat fees as they did it.

However, you seem to have done this without actually looking at the history of the holdings of their ~10 managed funds to see if one was disposing of Woodford within their strategy while another was acquiring it, rolling from one to the other. This does not seem to have been the case.

If they have not done it (and they probably haven't, because it would be unusual for example for their UK Growth MM fund to decide it is not worth holding just as their UK Income & Growth MM fund decide it is a great thing to add to the portfolio), then the point about whether they would charge an incremental fee for such a transaction, seems moot.

It is unlikely that an HL spokesperson is going to spot your suspicious musings buried in a thousand+ post thread about Woodford, and come on here to set you straight, however much you would appreciate them directly clarifying the point and think it would be a 'good opportunity' for anyone connected with HL to clear it up. If you are curious, why not contact them and ask, then come back here and tell us whether you were right in how you think their business model works.

You also mention:

Pay-off for Woodward was that their diaspora of investors were largely unaware of HL's artificial protection against proper scrutiny of the performance of their fund.

The performance can be seen through the daily price net of charges which is published about 250 times a year, and HL do not really prevent scrutiny of that performance, given they put it on their own website with interactive charting feature (albeit, only 5 years worth of data; but WEIF only lasted 5 years before being gated so nobody who invested can complain they were missing some of the history).

HL also link to the fund financial statements on their site to save curious investors the effort of going to Woodford's own site to see the full list of the fund's holdings on a semiannual basis (Woodford's site provided them on a monthly basis, prior to gating).

Not sure which of those things is providing Woodford with 'artificial protection against scrutiny of fund performance'.

Perhaps you just mean that the fact that they offered a discounted share class together with positive commentary was tempting for investors so investors did not bother to look at the fund performance or read the reports or factsheets or see what type of investments were held. Such investors - selecting investments on a DIY basis without looking at fund performance, holdings information or other useful data - have themselves to blame, even if you would prefer to paint HL as the bad guy. I am not saying that HL are good guys or come out of this well, and agree with the 'conflict of interest' noted by other experienced commentators.

[Deleted User]

If you are curious, why not contact them and ask, then come back here and tell us whether you were right in how you think their business model works.

I did.
And HL said that HL investors in funds under their aegis incur charges, but I don't know in which circumstances these would these are waived, if any; nor if there are incentives for fund managers to load up with HLs favourite investments.
I would imagine they do use that leverage, it helps to make sense of HL's perseverance with Woodford's brand that has impacted 1/4 million of their clients.
It's hard to imagine that they don't.

bowlhead99

ZingPowZing wrote: »

If you are curious, why not contact them and ask, then come back here and tell us whether you were right in how you think their business model works.

I did.
And HL said that HL investors in funds under their aegis incur charges

Investors in funds whether or not the funds are under HL's 'aegis' will incur charges.

I am not sure whether by under their 'aegis' you mean:
- those 13 funds which are managed by HL under the HL brand, or ;
- those c.50 funds that are run by third party managers but more heavily promoted to investors by HL (you have mentioned that you consider Woodford's funds to receive 'protection' by HL), or ;
- just generally mean all the thousands of funds which are made available to customers who use HL's platform to access investments?

Either way, it's clear that investors in funds managed by HL are exposed to management fees and running costs incurred by those funds. And of course, investors in funds not managed by HL are exposed to management fees and running costs incurred by those funds, which occurs whether or not the funds are promoted in a Wealth 50 list.

Whether investors choose to invest in HL managed funds, or third party funds promoted by HL on a marketing list, or third party funds offered by HL but not promoted in their marketing list - the platform fee paid by the investor to HL is the same. For the HL managed fund, HL will also be taking fees directly from the fund for the management work.

, but I don't know in which circumstances these would these are waived, if any; nor if there are incentives for fund managers to load up with HLs favourite investments.
I would imagine they do use that leverage, it helps to make sense of HL's perseverance with Woodford's brand that has impacted 1/4 million of their clients.
It's hard to imagine that they don't.

You imagine that there are incentives for third party fund managers to load up with funds promoted by HL? How would that work? Who would provide the incentive?

If e.g. Jupiter run a fund-of-funds and decide they'd like to invest a few tens or hundreds of millions in Woodford's equity income fund, they will go to Woodford and ask to subscribe to the institutional version of his fund. They won't go to HL with their credit card information and ask HL to get them access to a discounted share class designed for retail customers.

Whether or not WEIF is HL's 'favourite' fund to offer to retail investors, Jupiter (running a multi-manager product which is a rival to HL's own) is not going to rock up at HL's doorstep and say, "we like Woodford and others and so would like to load up with all your favourite investments, can you get us in with a discount please?"

AnotherJoe

ZingPowZing wrote: »

If you are curious, why not contact them and ask, then come back here and tell us whether you were right in how you think their business model works.

I did.
And HL said that HL investors in funds under their aegis incur charges, but I don't know in which circumstances these would these are waived, if any; nor if there are incentives for fund managers to load up with HLs favourite investments. <----what does that mean? Thats a non sequitur.
I would imagine they do use that leverage, it helps to make sense of HL's perseverance with Woodford's brand that has impacted 1/4 million of their clients.
It was a name that was attractive to people. They encouraged that attraction by saying it was good (via the wealth 50) and got people to invest in W with them instead of elsewhere. And probably it encouraged them to get off the fence and put their cash ina fund. Theres no commission on cash.

It's hard to imagine that they don't.

Only to you. You have let your annoyance at HL in one respect (CETV transfers) build up into a general conspiracy theory not only based on no evidence, but indeed when presented with evidence its not correct, you are burrowing into non existent rabbit holes looking for it somewhere.
HL gained through discounts simply by making their platform more attractive to people to hold funds there than with another broker, and thus gained from the total funds under management.
Its as simple as that.

• Fund managers are not paying transaction fees to HL,
• HL dont charge for clients moving from one fund to another,
• Clients dont pay extra hidden fees to a fund that HL receive as a kickback.

OldMusicGuy

AnotherJoe wrote: »

Only to you. You have let your annoyance at HL in one respect (CETV transfers) build up into a general conspiracy theory not only based on no evidence, but indeed when presented with evidence its not correct, you are burrowing into non existent rabbit holes looking for it somewhere.

Well said. ZPZ is completely missing the issue. Like I said in my post, the real issue IMO is HL's remorseless promotion of Woodford's funds through its "research" and marketing. It wasn't getting any form of direct kickback, but as an organisation with significant financial holdings in Woodford funds, it is highly questionable for their research function to maintain a strong positive view of Woodford which would definitely influence investors.

It influenced me in my decision to invest a significant amount in Woodford Income Focus (it wasn't the only reason). However, I got uncomfortable with its performance and Woodford's strategy so sold up at a small loss. However, HL's research kept saying they felt Woodford was great and I was surprised they remained so positive even when the concerns started to be raised. Then the head of their research function sold a load of his HL shares just weeks before the fund was gated and HL shares tanked as a result.

HL definitely should face some investigation and censure over its behaviour.

[Deleted User]

HL definitely should face some investigation and censure over its behaviour.

There was some interest:
https://citywire.co.uk/investment-trust-insider/news/fca-examines-whether-hargreaves-was-too-slow-to-drop-woodford/a1244166

That was June, when trading in Woodfrord funds was suspended. I'm not sure if that examination is now concluded.

Of the 1/4 million HL customers to be affected, my guess was that most did not consciously choose Woodford, but rather found they were invested in a slice of Woodford buried in the mix of holdings under control of their fund promoted on HL's site (like a sub-prime element). Furthermore, I wondered whether HL adopted the True Potential model of switching funds (inc Woodford's) in and out of their funds according to risk profile - charging transaction fees as they go. If HL have "significant financial holdings" in Woodford funds, it's understandable. Is it definitely the case that this did not happen?

I freely admit that I dislike Hargreaves Lansdown but didn't know that "the head of their research function sold a load of his HL shares just weeks before the fund was gated."

OldMusicGuy

ZingPowZing wrote: »

Of the 1/4 million HL customers to be affected, my guess was that most did not consciously choose Woodford, but rather found they were invested in a slice of Woodford buried in the mix of holdings under control of their fund promoted on HL's site (like a sub-prime element).

Personally I would doubt that but to be fair I don't know. The HL clients that were "unknowingly" invested in Woodford would be those that use the HL MM funds, which are a really, really bad choice because they are so expensive for what they are. Only really uneducated investors would choose those, but we have had people on here that have invested in them.

I suspect most would have picked the individual Woodford funds because they constantly featured in their "Wealth 100" list and also received relentless email campaigns from HL about the funds. For example, it was emails from HL that made me look seriously at the Woodford Income Focus fund at launch when I was looking to add an actively-managed income fund to my portfolio. Mark Dampier was consistently bullish about Woodford right up to the last minute before he cashed in his shares are conveniently retired. Then the brown stuff hit the fan.......

The lady that was featured in the documentary had invested in one of the Woodford funds and said she did "research". As she clearly used HL, I suspect that involved reading some of the advertorial from HL which is not advice but looks pretty much like it to the inexperienced person.