Do you think £50 is a 'nominal' amount of money?

Most new entrants to the fund management business are beginning to understand that they need to compete on price. The established players don't seem to get it.

I wrote last week that new entrants to the fund management market now appear to understand that they need to at least pretend to compete on price as companies do in most other markets.

However, it turns out that not all the established players in the market are with the programme on this particularly in the private client industry.

A reader has forwarded me a note to him from Killik and Co. It offers him the opportunity to have the company build him a "bespoke UK-listed equities portfolio."

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The nice people at the firm will gather together for him ten holdings with a"defensive growth bias" and with "strong long term growth prospects not reliant on sustained cyclical recovery." They'll also try and make sure that he gets a "minimum prospective dividend yield of 2%." They'll time their stock selections "as precisely as possible", and even let him say if he doesn't want them to buy any commodities or oil and gas for him. They'll also write down their ideas "in depth" so giving him comfort that his stock holdings are "fully researched".

That sounds like a lot of work for them. But I don't suppose it really is Killik is a stockbroker, so stock picking is what they are supposed to do anyway: any of the stocks they might shovel into your portfolio will already be part of what they call their "virtual portfolio of ideas".

So what do you think Killik might charge you for this list of ten stocks? A management fee of 1%, perhaps, to cover the admin of opening a special account for Killik to put your shares in, the fact that you are getting a "tailored account" plus a contribution towards your broker's bonus? Or maybe a little bit more because you are a private client and everyone in the business knows it makes sense to charge private clients extra. If so you'd be wrong.

They'll be charging you 2% of the value of the portfolio every year, plus 10% of all returns over those made by the FTSE All Share Index (plus VAT). And they'll also be charging you £50 per trade regardless of the size of the trade rather than the £15 or so you'd pay at a discount broker. That's a sum they consider to be "nominal".

This is totally, absolutely, 100% outrageous. As a product it has few saving graces. As a charging structure it has absolutely none.

It doesn't even pretend to be clever no derivatives, no short selling, no shifting around asset classes. None of the stuff that allows hedge funds to get away with claiming (wrongly of course) that they can charge silly fees because they can do stuff other people can't. And it doesn't even invest abroad and therefore need complicated stuff such as bilingual analysts or aeroplane flights to be involved.

Instead, it is just a concentrated (and therefore risky) portfolio of long-only UK-listed stocks. For which they want to charge double the normal UK management fee, as well as a performance fee.

My views on performance fees (they are wrong, wrong, wrong) are here: The only kind of performance fee I wouldn't mind. But I feel much the same about the 2%. It is rapaciously high. And it is totally out of whack with market trends.

Get the iShares FTSE UK Dividends Plus ETF instead. Or a good investment trust (Morningstar has just started rating them, which is helpful). Or really just about anything.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.