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    • honey pot
    • By honey pot 13th Jul 18, 3:37 PM
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    honey pot
    HL Investment Fund Spread 5.77%
    • #1
    • 13th Jul 18, 3:37 PM
    HL Investment Fund Spread 5.77% 13th Jul 18 at 3:37 PM
    Hi there
    Recently moved my pension to a HL SIPP as i wanted a bit more control although i am a novice investor. Invested in a range of funds including this one - Legal & General UK Property Trust PAIF which i thought would be a cautious investment offering slow but steady growth. Unfortunately being new to this game i did not pick up on the fact there was a massive buy sell spread difference of some 5.77% with this fund ! . I had mistakenly assumed that as all my previous fund purchases had the same buy / sell price this would be the same. As such on the performance of the fund in the last few years i will be lucky to make my money back within a year.

    I phoned HL directly to enquire why the value of my investment had dropped immediately and the advisor explained the buy / sell differential and also told me that fund managers sometimes do this to stop people from investing in a fund that has too much money it already - later i was told this advisor had made a mistake and this is not the case !

    So i am raising a complaint with them saying they have not done enough to protect me from this kind of event . My main points are

    1) This fund with this spread is not a realistic investment for anyone and should not be offered for sale by them - the only people who will buy it are people like me who make a mistake.

    2) They should do more during the dealing process to make novice investors like me aware of this additional cost. It does not appear as a charge on the CHARGES AND SAVINGS tab on the website although to me it seems no different from paying an initial up front charge.

    Anyway just curious to see if people think i have a point or whether its all down to my own incompetence !

    thanks
    Last edited by honey pot; 13-07-2018 at 3:43 PM. Reason: clarity
Page 1
    • eskbanker
    • By eskbanker 13th Jul 18, 3:54 PM
    • 7,502 Posts
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    eskbanker
    • #2
    • 13th Jul 18, 3:54 PM
    • #2
    • 13th Jul 18, 3:54 PM
    They should do more during the dealing process to make novice investors like me aware of this additional cost. It does not appear as a charge on the CHARGES AND SAVINGS tab on the website although to me it seems no different from paying an initial up front charge.
    Originally posted by honey pot
    It's not an additional cost or a charge as such though, it's just that the buy price differs from the sell price.

    http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-property-paif-class-i-income clearly and prominently states in bold at the top of the page:
    LEGAL & GENERAL UK PROPERTY TRUST PAIF CLASS I - INCOME (PAIF GBP)

    Sell:56.28p Buy:59.42p
    and the same applies to the Acc version.
    • dunstonh
    • By dunstonh 13th Jul 18, 4:06 PM
    • 93,367 Posts
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    dunstonh
    • #3
    • 13th Jul 18, 4:06 PM
    • #3
    • 13th Jul 18, 4:06 PM
    I phoned HL directly to enquire why the value of my investment had dropped immediately and the advisor explained the buy / sell differential and also told me that fund managers sometimes do this to stop people from investing in a fund that has too much money it already - later i was told this advisor had made a mistake and this is not the case !
    It wouldn't have been an adviser you spoke to. It is a non-advised service they offer to DIY investors.

    The explanation given is one that can apply to soft closed funds. The information you were given is not actually incorrect. It could be better described as spreads on property funds are there to act as a deterrent for trading.

    L&Gs actually has a lower annual cost than most property funds. Its two thirds the Target market OCF of the many of the others. So, a holding over 10 years would be about the same total cost as one without such a spread.

    So i am raising a complaint with them saying they have not done enough to protect me from this kind of event .
    What have they done wrong? You did not seek advice. They did not give advice. You acted on your own research and analysis and yet you want to blame someone else.

    1) This fund with this spread is not a realistic investment for anyone and should not be offered for sale by them - the only people who will buy it are people like me who make a mistake.
    I know you said you were inexperienced and this is where it shows.

    HL is a whole of market platform (as are most nowadays). It is not their place to monitor over 30,000 investments to decide what you should or should not invest in. If they started restricting investments like that they would no longer be a whole of market platform.

    There is nothing wrong with offering this fund. Despite the spread, it will still be suitable for some investors.

    2) They should do more during the dealing process to make novice investors like me aware of this additional cost. It does not appear as a charge on the CHARGES AND SAVINGS tab on the website although to me it seems no different from paying an initial up front charge.
    The dealing process, as you call it, is not the place for you to do investment research. It is there to place the transactions that you have already researched.

    The KIID for the fund says the following:

    Transaction costs: each day there are two prices for this Fund: a higher
    price you pay to buy units and a lower price you receive when you sell
    units. The Fund manager calculates these prices. The difference between
    these prices is called the 'spread'.
    The spread is separate to the ongoing charges shown in this section.
    This Fund's spread reflects the transaction costs of buying and selling
    commercial property, and other assets, incurred by the Master Fund. The
    spread can change at any time and by any amount. As an example, the
    buying price for units in this Fund was 5.44% higher than the selling price
    at 31 December 2017.


    So, as you confirm you have read the KIID when you do a trade, how is it their fault you missed it?

    Anyway just curious to see if people think i have a point or whether its all down to my own incompetence !
    No. You do not have a point. It was an error in your research.

    DIY means you take responsibility for your actions and your decisions.

    Edit: it is worth noting the following (for this particular fund). Under MiFIDII reporting it says (about the fund):
    Time Horizon Long > 5 years
    Execution Only Both
    Execution Only with Appropriateness or Non Advised Services Both
    Investment Advice Both
    basic Investor Yes
    Informed Investor Yes
    Advanced Investor Yes

    So, the regulatory position of the fund shows it to be suitable to offer to basic investors, informed and advanced and on an advised on non-advised basis.
    Last edited by dunstonh; 13-07-2018 at 6:25 PM. Reason: edited final bit for clarification.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • ColdIron
    • By ColdIron 13th Jul 18, 4:09 PM
    • 4,331 Posts
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    ColdIron
    • #4
    • 13th Jul 18, 4:09 PM
    • #4
    • 13th Jul 18, 4:09 PM
    Down to you I'm afraid, the buy/sell price is prominently displayed on HL's 'At a glance' tab

    It's important that, at the very least, you read and understand the factsheet before investing in something. The first page of the factsheet states:
    • Bid / Offer spread 5.77%
    The KIID states:
    • Transaction costs: each day there are two prices for this Fund: a higher price you pay to buy shares and a lower price you receive when you sell shares. The Fund manager calculates these prices. The difference between these prices is called the 'spread'.
    The following text is shown to you when you place a buy instruction
    On the plus side you've learned a valuable lesson and won't make this mistake again
    • Malthusian
    • By Malthusian 13th Jul 18, 4:47 PM
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    Malthusian
    • #5
    • 13th Jul 18, 4:47 PM
    • #5
    • 13th Jul 18, 4:47 PM
    This may be an unpopular opinion, but I think the OP has a valid complaint against their adviser, and the FOS may well order the OP to make a payment of £150 to themself for distress and inconvenience.

    (Only joking, the OP isn't regulated so the FOS can't order jack.)
    • Economic
    • By Economic 13th Jul 18, 5:03 PM
    • 266 Posts
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    Economic
    • #6
    • 13th Jul 18, 5:03 PM
    • #6
    • 13th Jul 18, 5:03 PM
    SIPP = Self-Invested Personal Pension. The name gives a clue about who is responsible for investment decisions.
    • bowlhead99
    • By bowlhead99 13th Jul 18, 5:42 PM
    • 8,063 Posts
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    bowlhead99
    • #7
    • 13th Jul 18, 5:42 PM
    • #7
    • 13th Jul 18, 5:42 PM
    The answers above, particularly dunstonh's, are probably comprehensive enough for you. Still,a few cents from me for good measure.

    You don't really have a complaint when you click through the buy process saying that you read the key investor information document (which mentions that there is a separate buy price and sell price) and then later want to blame someone else just because some other funds only have a single price and you didn't think to read up on this one.

    In a nutshell, you bought a fund that you didn't understand due to being new to doing research, and assuming you didn't really need to read the free info which they asked you to confirm that you'd read before accepting the order. Still:

    As such on the performance of the fund in the last few years i will be lucky to make my money back within a year.
    Originally posted by honey pot
    Investments aren't suitable to be held for only a year. They can go down as well as up. We all know this when we buy investments. It is stated all over the place when you go through the buying process and look at the marketing and the prospectus, KIID, factsheet etc. So, you didn't buy this to just hold it for a year an then dump it. You bought it for the longer term. So whether you break even or make a profit or loss on day one or year one is neither here nor there; the important thing is whether it meets its objectives (and hopefully your objectives) over the longer term.

    If you are stressed now, how will you react if it falls in value by 25% or more and they freeze redemptions for a while, denying you the ability to sell it? Perhaps better not ask yourself that question now , but you should have asked yourself those questions, among others, and when reading all the documentation, as part of your research.

    1) This fund with this spread is not a realistic investment for anyone and should not be offered for sale by them - the only people who will buy it are people like me who make a mistake.
    As it happens, my Mum has this fund within her ISA (also HL, as it happens) while Dad has exposure to it in his ISA through L&G Multi-Asset 5 (a fund-of funds which holds this fund among other ones in other sectors).

    They are both pensioners so from your perspective - if you were right - one could say HL are screwing poor old men and little old ladies out of their life savings with these outrageous funds which couldn't be suitable for anyone.

    However, they each have a diversified set of investments within their six-figure portfolios and take guidance from me from time to time (as a sophisticated investor who can explain things to them as needed) and I'm not uncomfortable with them using it as part of a portfolio. It wasn't a mistake, although both of them have other commercial property collective investment schemes within their overall set of holdings so it won't be the end of the world if it underperforms.

    2) They should do more during the dealing process to make novice investors like me aware of this additional cost. It does not appear as a charge on the CHARGES AND SAVINGS tab on the website although to me it seems no different from paying an initial up front charge.
    The purpose of this fund is to buy and hold commercial property, valued at several millions of pounds a time. If they buy a commercial property for ten million quid and with all the stamp duty and legals it costs (say) 10.5 million quid, to acquire that asset, then they might tell you the buy price is £105 for everyone who wants to join the fund this month. They issue 10000 new shares in the PAIF, and buy the property.

    However, if you all want to sell and take your money back the next week (meaning they have to sell the property to a rival property investor for the same ten million quid, less the inevitable costs of advertising it and running a sales process with more legal costs etc), then there is only £10 million (maybe less) with which to pay you out, so you can only get £100 per share; perhaps less.

    This doesn't mean you've suffered a 'charge' to line the fund manager's pockets, or HL's pockets, merely that the money you get back when selling an investment property can be lower than the sum total of all the costs of acquiring or developing that investment property yesterday. The 'spread' between buy and sell sits in the fund so that the fund can afford such costs of deploying subscriptions and funding redemptions. From the perspective of a holder of the fund, which you now are, it's good that the joiners and leavers will bear these costs through the spread in prices, so that the investors who just sit there and hold, don't need to bear those costs, and the fund will make greater overall gains (or lower losses).

    It's like if you bought a house today and sold it tomorrow. You don't say it should be illegal for you to have been sold the house just because you would need the house to go up in value a bit for you to break even. Over the long term, hopefully it goes up.

    Anyway just curious to see if people think i have a point or whether its all down to my own incompetence !

    thanks
    seems to be a consensus for the latter - sorry

    If you move your pension to somewhere that gives you more 'control' and freedom to self-invest, finding out how it all works is incumbent on *you* if you are going to use an execution only broker or platform which doesn't give you any related investment advice to go along with your new found freedoms.
    Last edited by bowlhead99; 13-07-2018 at 6:31 PM. Reason: typo
    • AnotherJoe
    • By AnotherJoe 13th Jul 18, 6:02 PM
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    AnotherJoe
    • #8
    • 13th Jul 18, 6:02 PM
    • #8
    • 13th Jul 18, 6:02 PM
    Two points.
    1. Should I be impressed with myself that I read the (very long and comprehensive) response and worked out it was Bh without seeing the name ?
    2. Stick with it, it's a long term investment.youll be fine.

    Oh yes, Spanish Inquisition situation, point 3, it's all down to you
    • Thrugelmir
    • By Thrugelmir 13th Jul 18, 6:12 PM
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    Thrugelmir
    • #9
    • 13th Jul 18, 6:12 PM
    • #9
    • 13th Jul 18, 6:12 PM
    This fund with this spread is not a realistic investment for anyone
    Originally posted by honey pot
    Why not? Over 70% is invested directly in physical property (bricks and mortar). Not tradeable securities. A fund for the long term not short term speculation.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • george4064
    • By george4064 14th Jul 18, 12:36 AM
    • 992 Posts
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    george4064
    Stamp duty.

    The mid/offer spread will be the majority of that compared to the mid/bid spread.
    "If you arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

    Save £12k in 2016 - #045 £10,358.81/£12,000 (86%)
    Save £12k in 2017 - #003 £12,427.51/£12,000 (104%)
    Save £12k in 2018 - #004 £3,484.43/£12,000 (29%)
    • Tom99
    • By Tom99 14th Jul 18, 2:35 AM
    • 2,376 Posts
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    Tom99
    The ACC version has increase 51% over the past 5 years compared with say a FTSE100 tracker at 40% so it is not all bad news.
    • Audaxer
    • By Audaxer 14th Jul 18, 6:52 AM
    • 1,146 Posts
    • 678 Thanks
    Audaxer
    As such on the performance of the fund in the last few years i will be lucky to make my money back within a year.
    Originally posted by honey pot
    The HL site shows that the performance of the fund over the last 2 years had gains of 17.18% and 9.07%. So I would stick with the fund now that you've bought it as it still seems a good addition to a portfolio and hold long term despite the buy/sell spread.
    • Tom99
    • By Tom99 15th Jul 18, 4:07 AM
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    Tom99
    Assuming the 5.77% spread gives a profit to the fund over its actual costs, does that profit go into the fund's value or is it kept as extra income by the fund managers on top of normal charges?
    If the profit goes back into the fund valuation then if you keep the fund for long enough you will benefit from others buying and selling in the future because the unit price will be topped up by this profit.
    • george4064
    • By george4064 15th Jul 18, 7:33 AM
    • 992 Posts
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    george4064
    Assuming the 5.77% spread gives a profit to the fund over its actual costs, does that profit go into the fund's value or is it kept as extra income by the fund managers on top of normal charges?
    If the profit goes back into the fund valuation then if you keep the fund for long enough you will benefit from others buying and selling in the future because the unit price will be topped up by this profit.
    Originally posted by Tom99
    Itís not profit. In simplistic terms, 5% of it is to cover stand duty land tax and the other 0.77% is to cover other costs of buying a commercial property.
    "If you arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

    Save £12k in 2016 - #045 £10,358.81/£12,000 (86%)
    Save £12k in 2017 - #003 £12,427.51/£12,000 (104%)
    Save £12k in 2018 - #004 £3,484.43/£12,000 (29%)
    • Alexland
    • By Alexland 15th Jul 18, 8:13 AM
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    Alexland
    I'd be slightly ashamed to make a complaint that I hadn't read the information before placing the trade. The good news is that you now own what you wanted to own. Whenever I have bought real life property then after paying stamp duty and solicitors fees I have always been about 5% down. That's life.
    • bostonerimus
    • By bostonerimus 15th Jul 18, 12:31 PM
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    bostonerimus
    Caveat Emptor and K.I.S.S
    Misanthrope in search of similar for mutual loathing
    • Tom99
    • By Tom99 15th Jul 18, 1:22 PM
    • 2,376 Posts
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    Tom99
    Itís not profit. In simplistic terms, 5% of it is to cover stand duty land tax and the other 0.77% is to cover other costs of buying a commercial property.
    Originally posted by george4064

    I can understand that being the case if there was only ever new investment in the fund.
    However if, for example, the same number of units were sold as bought then there would be no change in the stock of commercial property owned and therefore no 5% stamp duty to pay.
    • le loup
    • By le loup 15th Jul 18, 3:16 PM
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    le loup
    So, if I bought some shares at a different time when a property purchase was imminent, you would be happy for me to pay on your behalf?I think you need to do a bit more research on collective investments.
    And, of course, if you don't like the terms, don't buy.
    • Malthusian
    • By Malthusian 16th Jul 18, 9:18 AM
    • 4,314 Posts
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    Malthusian
    I can understand that being the case if there was only ever new investment in the fund.
    However if, for example, the same number of units were sold as bought then there would be no change in the stock of commercial property owned and therefore no 5% stamp duty to pay.
    Originally posted by Tom99
    How do you work that out? The Government doesn't give you the stamp duty back when you sell a property.
    • Tom99
    • By Tom99 16th Jul 18, 12:34 PM
    • 2,376 Posts
    • 1,603 Thanks
    Tom99
    How do you work that out? The Government doesn't give you the stamp duty back when you sell a property.
    Originally posted by Malthusian

    If say £10,000 flows into the fund but also £10,000 is withdrawn there will be no new investment in commercial property and hence no new stamp duty incurred.
    However there is still a 5.77% spread and since the admin cost ought to be minimal maybe some of that 5.77% spread ends up as profit for the fund.
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