How to compare Lloyds IPS against other investements

moneybelle

The 1% management fee for lloyds includes all management costs of individual funds; it is NOT 1% on top of other management charges.

HL do a similar multi manager fund for no entry fee, 1% per annum charge

dunstonh

The 1% management fee for lloyds includes all management costs of individual funds; it is NOT 1% on top of other management charges.

That is not correct. That would mean they would be running it at a loss.

HL do a similar multi manager fund for no entry fee, 1% per annum charge

That is not quite correct. Whilst the amc if 1.0%, the funds invest into other funds which carry charges. The TER on the HL Income and Growth Portfolio is 1.90%. Basically, HL are charging 1% on top of the fund managers annual management charge although they do get some discount. It also is not comparable to discretionary fund management which is a different service.

Can you clarify if you are still talking about the discretionary fund management services of Lloyds or using their internal fund range from Scot Widows? Many of the SW funds are 1% but then they are pretty rubbish (lots of threads in last few months about them).

The HL MM funds and the Scot Widows funds are not discretionary fund management/portfolio services. The lloyds private banking service is.

moneybelle

In a clarifying email from HL they said that they can charge 1% per annum inclusive because they get wholesale rates from their fund managers. The 1% the client is charged absorbs all the management charges to them.

Lloyds FA said the same to me via phone, basically. The lloyds private banking "balanced profile" is the one they suggested. Consists of 45% various bonds, 5% overseas equity 5% NU property 45% multimanager equity funds

I'm looking into my own funds at the moment for reasons of performance regarding lloyds.

dunstonh

In a clarifying email from HL they said that they can charge 1% per annum inclusive because they get wholesale rates from their fund managers. The 1% the client is charged absorbs all the management charges to them.

Go to an independent site and look up the total expense ratio.

HL and all the other MM providers all get the funds a bit cheaper but you are still paying increased charges.

Lloyds FA said the same to me via phone, basically. The lloyds private banking "balanced profile" is the one they suggested. Consists of 45% various bonds, 5% overseas equity 5% NU property 45% multimanager equity funds

And they charge 1% themselves for getting those funds. The same funds that you or any other independent investment manager can get without charging more on top.

I'm looking into my own funds at the moment for reasons of performance regarding lloyds.

Hopefully you are not looking at MM funds (from anyone). If you are in the range of portfolio value of a discretionary fund manager then use of MM funds would be wasteful and inefficient.

If Lloyds are trying to sell a discretionary fund management service but are using unit trusts then that is also wasteful as the idea of that service is to use more direct investments and keep it under management. Not using packaged investments which is where you would expect IFAs to come in.

We used to have a poster here who was a discretionary fund manager and he would cringe at the thought of you even considering using Lloyds. I'm sure he would have a lot to say about the portfolio being virtually all, if not all, unit trust based because that isnt what you are paying for. In effect you are using Lloyds as an IFA service if you do that but paying for more than an IFA would cost.

munk

The Lloyds IPS service incurs a charge of 1% or £1000 (whichever is greater) of the value of your portfolio per annum. You also pay between 0.5-0.95% pa in AMCs for the limited funds they offer. There are also withdrawal charges of £500.

To quote from the rates & charges document for the IPS Asset Management service (unfortunately can't find a copy of this online, yet another reason to be very suspicious of this service, nothing available via the private banking site afaict):

Rates and Charges for the Investment Portfolio Service (IPS)
Service Charge and Termination Fee
The basis of the charge
A service charge of 1% is payable annually in advance and is based upon the market value of your IPS portfolio, including any balance on your Capital account. This service charge is for our management and admin of the securities in your IPS portfolio ...
...
There is a minimum annual charge of £1000, other than for the first year when there is no minimum charge.

...

Termination
A termination fee of £500 will be made on closure of your portfolio to cover our costs in relation to the closure, for example transferring assets back to you or your personal representatives or as you may direct.

Also relevant:

Fund Charges
Initial Charge
Each time capital is introduced for investment into any of the funds, an initial fund charge is taken by Lloyds TSB Private Banking.

This charge is 2.5% of the amount to be invested for portfolios valued at less than £250k and 1.5% for portfolios valued at £250k or greater.

Further on there are explanations of the AMCs for the available funds for the IPS, which range from 0.50-0.95% for the equity based funds. The AMCs are so low because they're institutional shareclass funds (P class), you don't actually own the shares in the funds directly, if you want to transfer out from the IPS service but keep the fund holdings then you'd be given A shareclass funds. Importantly though there appears to be a very limited range of funds available to the IPS manager - just 12 SWIP funds.

I've just reread the t&c because I can't believe there is such a limited range of funds available for people investing over £250k, but on a second reading this does seem to be the case. There is something in the t&c where they say 'We may at our absolute discretion accept for management securities introduced by you for this form of the service (your portfolio) which are to be sold and reinvested into collective investment schemes from our IPS Investment range'. So this sounds as though any investments you already have outside of Lloyds own range of SW products that you want to be incorporated into the portfolio will be sold and then reinvested in the SW products.

I would not touch this with a bargepole, you're being fleeced. When I originally read these t&c about 6 months ago it sounded slightly expensive - however reading this again in hindsight with the knowledge I've gained of investing over the last 6 months, this IPS service is extortionate - a license for Lloyds to print money, stay well clear.

You'd be a lot better off employing a decent IFA - you'd pay a lot less than 1% pa (even with discretionary management you could probably get a better service for 0.5% pa), you'd have access to 2-3000 funds as well as other asset classes like gilts, shares, etc and the initial charges would be well under 1.5% (for comparison if you go DIY you'd pay no more than 0.25%). To be fair the AMCs you'd pay on funds would be more than 0.95% for most equity based funds (around 1.5% on average), but you could at least expect them to perform better than the SWIP funds that are listed in the brochure. (EDIT: realized afterwards that the reason the amcs on the IPS funds are so low is because they're institutional shareclass funds)

At the very least request that they send you a copy of the Lloyds TSB Private Banking brochure, terms & conditions and rates & charges documents (it's the 'Asset Management Service - Investment Portfolio Service and Portfolio Administration Service Rates & Charges' I quoted from above).

EDIT:
PS dunstonh do you remember the forum nick of this discretionary manager you mention?

dunstonh

PS dunstonh do you remember the forum nick of this discretionary manager you mention?

Chrismaths.

jamesd

HL are not charging 1% inclusive. They are charging 1% for their own fund management but there are in addition costs for the underlying funds. Take a look at the HL Multi-Manager Inc & Growth Portfolio Income Units key features and you'll see a 1% fund charge from HL and a 1.9% TER. That TER includes both the 1% from HL and the charges of the underlying funds and that 1.9% is what you end up paying.

This is normal for funds of funds: the TER is where the charges for the funds purchased by the fund of funds shows up.

Looking at the holdings of this fund, the largest is Artemis Income. If purchased independently as a retail fund via HL that fund has an annual charge of 1.5% and TER of 1.55%. In the ISA HL will refund 0.13% so that leaves an independent holding cost of 1.42%. That's more than the 0.9% extra in the TER that you get it for as part of the multi-manager fund.

However, if you look at the Artemis institutional funds page you'll find that they charge an annual charge of only 0.75% for institutioanal funds and the estimated TER for the institutional equity income fund is estimated to be 0.78%. And that's less then the 0.9% that shows up in the TER of the HL multi-manager fund.

So, no, 1% is not the total charge, 1% is just the cream that HL charge for their fund selection and management while the rest of the TER is covering the costs of the underlying funds that it holds.

The TER of the HL multimanager fund is still about 0.5% higher than holding the retail fund directly. If you look at the holdings of the HL fund you'll see that the top ten holdings amount to 94.2% of the fund so if you really wanted to you could get most of it just buy buying those funds yourself, saving 0.5%. What you'd lose by that is any gain from the undisclosed holdings and HL's management changing the fund mix over time.

No surprise to be paying 0.5% more, that's what you'd pay someone else in trail commission.

Given the amount of money you have, an independend manager might do a full management job for less than 0.5%, while the normal 0.5% that's trail comission should be easy to achieve. I think it's the sort of business that dunstonh say would love to have.

moneybelle

If this is indeed the case, why will they not be straight with me about it when I ask a direct question?

Is there a useful article anywhere that someone can recommend on how to find out what hidden charges can/will be made, the difference between management charge and TER for a fund, etc etc

Thanks in advance

meester

jamesd wrote: »

HL are not charging 1% inclusive. They are charging 1% for their own fund management but there are in addition costs for the underlying funds. Take a look at the HL Multi-Manager Inc & Growth Portfolio Income Units key features and you'll see a 1% fund charge from HL and a 1.9% TER. That TER includes both the 1% from HL and the charges of the underlying funds and that 1.9% is what you end up paying.

This is normal for funds of funds: the TER is where the charges for the funds purchased by the fund of funds shows up.

Looking at the holdings of this fund, the largest is Artemis Income. If purchased independently as a retail fund via HL that fund has an annual charge of 1.5% and TER of 1.55%. In the ISA HL will refund 0.13% so that leaves an independent holding cost of 1.42%. That's more than the 0.9% extra in the TER that you get it for as part of the multi-manager fund.

However, if you look at the Artemis institutional funds page you'll find that they charge an annual charge of only 0.75% for institutioanal funds and the estimated TER for the institutional equity income fund is estimated to be 0.78%. And that's less then the 0.9% that shows up in the TER of the HL multi-manager fund.

Some other funds may be charging more than that.

Also the TER includes trustee fees, etc, which is why it comes to 1.9%

So, no, 1% is not the total charge, 1% is just the cream that HL charge for their fund selection and management while the rest of the TER is covering the costs of the underlying funds that it holds.

This is less than Jupiter charge for their Merlin range. They charge 1.5%.

No surprise to be paying 0.5% more, that's what you'd pay someone else in trail commission.

You don't pay commission. It is taken from the annual charge. If you invested in these funds, 0.5% PA goes to the advisor, taken out of the 1.5%.

They would probably charge upfront though.

munk

Have a look here:

http://www.moneymadeclear.fsa.gov.uk/products/investments/types/pooled/open-ended_investment_funds.html

Charges

When you buy units/shares in a fund, you usually pay an initial charge. How the charge is shown depends on how the price is worked out.
For some funds, you buy units at the offer price and sell them at the bid price. The bid price is lower than the offer price and the difference is called the bid/offer spread. These funds are referred to as being dual-priced. The initial charge is usually part of the bid/offer spread, which can often be around 5% – so effectively 5% of your investment is taken in charges at the outset. Some funds have no initial charge, but there may be an exit charge instead when you withdraw your money by selling units. (munk: unit trusts are dual priced)

For many funds, there is no difference between the buying and selling price of units. Because of this, the funds are referred to as being single-priced. If there is an initial charge, it is added to the single price when you buy units, and there may also be an exit charge when you sell units. Between them, these charges are likely to represent around 5% of your investment, so you may end up paying the same level of charges in a single-priced fund as in a dual-priced fund. (munk: OEICs are single priced)

The fund management company takes an annual management charge directly from the investment fund. There are also other costs – buying and selling within the fund, custodian fees etc. These costs, along with the annual management fee, are called the total expense ratio (TER). The TER is therefore an estimate of the total ongoing costs of the investment.

For the gory details http://incademy.com/ has more in depth detail about the pricing structure for UTs/OEICs.