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Bye Bye PPI, Grand Designs and Pricey Trackers

Editor's Views: Investors need to vote with their feet on expensive funds, and celebrities should probably steer clear of financial products

Holly Black 30 August, 2019 | 10:16AM

editor

How does any investment group think it is acceptable to charge their customers 1.5% to invest in a fund that simply copies the stock market?

Vote With Your Feet

With some things in life there is an argument that paying more for a product is worth it, and that the higher cost brings a high quality – organic food that is free of pesticides, perhaps, or a car with a great safety record.

With a tracker fund, no such argument can be made.

To me, this is just profiteering from investor inertia. Fund groups rely on you not checking fees or not realising just how much they eat into your returns. Scottish Widows has gone so far as introducing a new clean share class for its UK Tracker fund – the annual charge for new investors is 0.5%, half the fee of the older share class. But it has not automatically moved investors into the new, cheaper units. 

A difference of a few basis points between funds with the same remit may well be the reflection of different costs, the size of an investment team, the amount of assets in the fund and the like. But there is no reason why one fund can track the stock market for 0.05% and another charges 1.5% for the same job.

If you have held the same funds for years, and you can’t remember when you last checked what the fees are, I implore you do so. The only way to force fund groups to change is to vote with your feet and move your money elsewhere.

Head in the McClouds   

The collapse of mini-bond investments is becoming worryingly frequent. Already this year we have seen the high-profile failure of LC&F, which left investors £240 million out of pocket, and just two weeks ago Asset Life collapsed into administration. Now, investors who piled millions into eco-friendly housing developments are facing the very real prospect of losing 97% of their money. These mini bonds were backed by TV presenter Kevin McCloud, of Grand Designs fame. 

One of the recurring themes with all of these mini bonds is the enticing rates of interest they offer – it’s no surprise that promised returns of 8 or 9% are attracting investors in their droves at a time when it’s hard to earn more than 1% from a saving account.

But dodgy investments often conjure images of ruthless conmen and slippery salesman preying on the vulnerable – not a mild-mannered architect off the telly. No doubt, McCloud's clout in the property market no doubt reassured investors that the bonds being offered by his company were a safe bet.

We all know the “you should have done your research” and “if it looks to good to be true…” arguments when it comes to these mini bonds but any individual leveraging their celebrity status to market financial products should really think twice.

While McCloud has promised to tsand "shoulder to shoulder" with those who have lost money, this episode will surely harm his reputation, to say nothing of the harm done to the savings of those who backed him. 

Deadline Day

It’s hard to even imagine a world without PPI claim adverts, they’ve been around so long. But just hours ago we finally reached the deadline for claims.

Since the first compensation payment was made back in 2011, banks have paid out between £300 million and £400 million a month to customers who were mis-sold the insurance. Thousands upon thousands have people have received an average of £1,700 each, while one person was reimbursed to the tune of £142,000.

The cost of this mess is almost unfathomable and bank bosses will surely be grateful to finally put the matter to bed. Bank shareholders will welcome an end to the debacle too – once banks know how much the final bill will be they can start upping their dividends.

One thing I’d be very curious to see is figures on how many people left it until the final day to put their claim in.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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