Woodford Concerns

arwain

The FCA are looking if institutional investors and retail investors need to be in different funds in the light of what has happened to Woodford after Kent County Council tried to withdraw a lot of money from his fund. More on the story here
https://www.moneyobserver.com/news/fca-retail-and-institutional-investors-may-need-to-be-different-funds

AnotherJoe

arwain wrote: »

The FCA are looking if institutional investors and retail investors need to be in different funds in the light of what has happened to Woodford after Kent County Council tried to withdraw a lot of money from his fund. More on the story here
https://www.moneyobserver.com/news/fca-retail-and-institutional-investors-may-need-to-be-different-funds

I saw that. Classic FCA, address the symptom not the root cause.
The root cause was a fund manager out of control and FCA inadequate action well before a problem arose.
And their so called solution wouldn't fix this anyway, a run on a fund is still possible in their solution
Better regulation on liquidity, naming the exchanges that are allowed to be used rather than loose wording about "recognised exchanges", and an FCA that is much more proactive (just look at their stable door approach to unregulated bonds masquerading as regulated via shonky adverts) might be a good start.

bowlhead99

arwain wrote: »

The FCA are looking if institutional investors and retail investors need to be in different funds in the light of what has happened to Woodford after Kent County Council tried to withdraw a lot of money from his fund. More on the story here
https://www.moneyobserver.com/news/fca-retail-and-institutional-investors-may-need-to-be-different-funds

The article followed the Times's article on Monday after their interview with Bailey. The problem is really the holding of illiquid assets in a fund that allows daily redemptions. Investors - whether a load of individual investors at once, or large institution(s), can demand their money at short notice.

Even if you put institutions in fund A with monthly redemptions on advance notice, and retail investors in fund B with daily or weekly redemptions on advance notice to a cut-off, the problem is not really solved - the manager just gets a bit more breathing space to plan movements in the liquid part of the portfolio, while still potentially being left with a rump of hard to sell assets if redemptions are heavy.

However, having notice periods or less-frequently-than-daily redemptions allowed in a retail fund would be off market standard and wouldn't really fly with retail investors, so the clear solution would be to create a permanent capital vehicle (e.g. closed ended investment trust) and list it on the stock exchange (as per WPCT). But then you won't get fund platforms promoting it and raise billions.

[Deleted User]

AnotherJoe wrote: »

:mad:
For crying out loud, how many times does it have to be stated for it to sink into your skull that HL DO NOT CHARGE TRANSACTION FEES FOR BUYING,SELLING OR TRANSFERRING BETWEEN FUNDS.

At least 20 i reckon, because that's probably how many times you've been informed of that in this thread. Maybe you could count the instances and that would help it percolate past your prejudices ?
I'm out.

If I have been told the above twenty times, then for the 21st time I'll repeat that Hargreaves Lansdown DO charge transaction costs on their funds. To quote them:
"Transaction costs include the explicit costs the manager incurs whilst dealing on behalf of the fund (broker commission, taxes and custodial charges) as well a measure of the fund's trading performance when buying and selling underlying investments."
To be fair, the charges projected are too low to be a big driver of profits for Hargreaves Lansdown; and some contributors say the practice of shuffling one holding between funds would be unlikely or forbidden.
But I do think it is naive to imagine that HL's business model is reliant solely on the fees they charge their clients; anymore than Aapl rely solely on the sale of iphones to generate profit.
The Woodford fiasco illustrates how the interests of Hargreaves Lansdown intertwine with various favoured funds. I don't know in how many funds Woodford is buried beneath a list of "top ten holdings" but, since a quarter of Hargreaves Lansdown customers are affected, if you are one, it may be prudent to check.
"Buyer beware" sure, yet, that Woodford's funds continue to leach fees while their investors watch, only seems like insult on top of misfortune.

Linton

ZingPowZing wrote: »

If I have been told the above twenty times, then for the 21st time I'll repeat that Hargreaves Lansdown DO charge transaction costs on their funds. To quote them:
"Transaction costs include the explicit costs the manager incurs whilst dealing on behalf of the fund (broker commission, taxes and custodial charges) as well a measure of the fund's trading performance when buying and selling underlying investments."
To be fair, the charges projected are too low to be a big driver of profits for Hargreaves Lansdown; and some contributors say the practice of shuffling one holding between funds would be unlikely or forbidden.
......

"Transaction costs" are by definition external costs such as brokers fees, bid/offer spreads, taxes, differences (plus or minus) between market price and actual trading price due to large quantities traded etc. Therefore they cannot be a driver of profits.


The costs incurred by HL themselves are included within the OCF.

[Deleted User]

Therefore they cannot be a driver of profits.

Unless the underlying holding belongs to a firm transferring the investment between two funds.

coyrls

ZingPowZing, you appear to be making the following accusations:

Firstly that Hargreaves Lansdown’s management of their multi manager funds involves moving portions of their holdings in the underlying funds between different multi manager funds in the name of risk management. You have no evidence that such movements take place.

Secondly that when such movements take place, Hargreaves Lansdown fraudulently claim to have incurred transaction costs through buying and selling units in funds, when in fact no such transactions have taken place because the units have simply been moved between different multi manager funds. The purpose of fraudulently claiming such charges is to increase Hargreaves Lansdown’s profits. You have no evidence of Hargreaves Lansdown making claims for transaction costs where in fact no transaction has taken place.

Thirdly that all the above has somehow been facilitated by Hargreaves Lansdown’s relationship with Neil Woodford because their multi-manager funds hold funds that were managed by Neil Woodford. You have not explained why any relationship with a fund manager of a fund held by the multi manager fund would be required for what you accuse Hargreaves Lansdown of doing.

[FONT=&quot]I have one observation and that is that you should be very careful about throwing around accusations of fraud for which you have no evidence.[/FONT]

bowlhead99

ZingPowZing wrote: »

If I have been told the above twenty times, then for the 21st time I'll repeat that Hargreaves Lansdown DO charge transaction costs on their funds. To quote them:
"Transaction costs include the explicit costs the manager incurs whilst dealing on behalf of the fund (broker commission, taxes and custodial charges) as well a measure of the fund's trading performance when buying and selling underlying investments."

That doesn't say that HL 'charge' transaction costs on their funds, at all. It says that the funds incur costs, including commission from brokers, stamp duties etc. In other words, costs paid to third party service providers or government levies etc.

If a HL-managed fund such as HL MM Income & Growth unit trust were to, for some reason, arrange for its holding of interests in WEIF to be re-registered in the name of HL MM Equity & Bond unit trust in exchange for some cash from that Equity & Bond fund that acquired the holding, there is no stockbroker brokering a deal because nothing is happening on a market. And there is no stamp duty because a transaction in an OEIC is not subject to it (and that wouldn't go to HL anyway).

coyrls

bowlhead99 wrote: »

That doesn't say that HL 'charge' transaction costs on their funds, at all. It says that the funds incur costs, including commission from brokers, stamp duties etc. In other words, costs paid to third party service providers or government levies etc.

I think he is saying that HL funds (i.e. their multi-manager / fund of funds) are claiming costs that they don't incur.

bowlhead99

coyrls wrote: »

I think he is saying that HL funds (i.e. their multi-manager / fund of funds) are claiming costs that they don't incur.

I think he's saying that HL who arrange stockbroking services and fund intermediary/platform distribution services must also be supplying those services to their own MM funds (some of which hold only other funds and cash, and others of which hold other funds, cash, and direct equity or bonds).

And therefore if they are providing some sort of intermediary service to those MM funds (eg trustee, broker, custodian, depositary etc), they will make money off the activity levels in the MM funds, such as when one HL MM fund sells a Woodford fund to another HL MM fund.

The points being missed include that their typical fee structure would result in no broking fee when an open ended fund is reregistered (as there's no broking of a deal on the public market, because Woodford OEICs aren't able to be publicly traded on an exchange) and other ongoing services would be NAV based rather than transaction based (trustee, depositary, custody) and are in fact carried out by other parties anyway (e.g. Trustee, depositary and registration carried out by Northern Trust).

The fact that they don't earn fees for those services is separate from the fact that they haven't been churning a WEIF holding across their MM funds anyway, as you can see from activity levels reported in the annual / semiannual reports of those funds...