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Woodford: The Fees – Part The Second

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(apologies for nicking Mark Lâ??s headline. Maniac dictatorâ??s privilege)

So as you read this, there will be excitement, feigned or otherwise, about who is or isnâ??t getting Mr Woodfordâ??s Famous Enormous SUPERCLEANâ?¢Â Discount. Itâ??s certain now that our favourite Bristolians with the big direct marketing bill get the Z class at 0.65% with a taxable 5bps rebate, whereas other fine platforms may have a scrap on their hands to escape the C class at 0.75%.

If we were betting folks â?? and the parlous state of the lang cat Strategic Gaming Reserves is testament to the fact weâ??re not, or shouldnâ??t be â?? weâ??d place a poond or two on a couple of the largest advised platforms also getting the nod for the Z class, but not with the 5bps rebate.

In terms of availability, you can check to see if your favoured platform gets Wood(ford) here. Worth noting that the list favours advised platforms for now, and we know already that some direct brokers wonâ??t have it in place in time for the offer period. So investors reading this should check with their platform before doing anything rash.

Right. 15 basis points, eh? Letâ??s have a closer look at what this means for the average investor.

Woodford blog table 1

If you read Markâ??s earlier blog, youâ??ll know that judging the Total Cost of Ownership of a fund is much more important than the headline AMC. For our purposes today TCO = AMC plus additional expenses plus platform cost. Each part needs unpacked.

First, we need to get the fund costs nailed. And this is where WF has done something rather unusual. There are no additional expenses in the fund, so (to nick Vanguardâ??s line) AMC=OCF. Weâ??re trying hard to stop saying TER. This has worked quite brilliantly for Vanguard, and I have a suspicion it will for WF too. The team at Woodford had the luxury of designing something from the ground up. They chose to break with industry norms in a way which (we think) favours the investor â?? and that is worthy of at least a spirited cricket ripple of applause. The next step is to get rid of â??hiddenâ?? costs, but until the IMA gets its cats fully herded that ainâ??t on the cards.

Comparing is good, so letâ??s do some of it from Woodford The New to Woodford The Old. Really what weâ??re doing here is comparing a fund with no additional expenses, to one with them. Neilâ??s old fund has an OCF of 94bps. Hereâ??s how it shapes up for a £10k investment over 10 years, excluding platform charges:

So that 19bps or 29bps or 34bps difference equates to £325 or £499 or £586 per £10k over 10 years depending on your share class. Do we care? Depends on your outlook, I suppose. Clearly if you have £100k in the fund, that £3,250 or £4,990 or £5,860 is better in your pocket than anyone elseâ??s.

Now letâ??s add in some platform variables and see what happens. Weâ??ll miss out the Invesco fund this time.

Woodford blog table 2

OK. Through the power of basic arithmetic, we can deduce that if you get a 10bps discount on a fund and your platform is 10bps more than one without the discount, it all works out the same, yeah? And if your platform is 20bps cheaper but your fund is 15bps more expensive, you get an extra £84 per £10k invested over 10 years.

We havenâ??t gone fancy here and included flat fee platforms or made any assumptions on investor behaviour. Our point is simply that if you want to minimise the cost of investing thereâ??s more to life than fund charges, and more to life than platform charges. You have to do something called â??adding upâ??. And something else called â??not believing the hypeâ??. Public Enemy taught us that. Beware those trumpeting fund-only cost comparisons in their press releases, for example.

For what itâ??s worth, we love what Woodford is doing with additional expenses, and we hope the fund does well. From our dimly-lit cave, though, the interplay of lower fund charge is only enabling HL (in this case; weâ??ll see about others) to keep its platform charge above the market. If youâ??re a Woodford-only investor and â??diversificationâ?? isnâ??t something you like, then itâ??s all good. The second you start moving away from those funds with best-friend deals, life starts to get a bit more nuanced. Sorry about that.

AMC=OCF, you say? Well played, old chaps, well played
AMC=OCF, you say? Well played, old chaps, well played
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About Mark Polson

lang cat founder and boss. Expert on all things platforms, pensions and investments. Prolific writer and public speaker, even when people ask him not to be. Knows more about Scandinavian black metal than you, and isn't afraid to prove it.