Good reads from around the Web.
The Financial Times has a weekly podcast, The FT Money Show, which is usually well worth a listen. This week’s is notable for two reasons.
Firstly, the host James Pickford is considerably scarier sounding than the usual host, Jonathan Eley.
Don’t worry – he can’t hurt you via the Internet.
Secondly, his guest Alan Miller of manager SCM Private had some interesting words on how the RDR changes to bring in transparency on charging have not really worked out.
Miller’s comments follow findings by the Financial Conduct Authority this week that most financial service providers are still not being clear about charges. (No surprise to anyone who has tried to find the cheapest online broker).
As The Guardian reported:
The FCA found 73% of firms had failed to provide the required information on the cost of advice.
For example, 58% failed to give customers clear, upfront general information on how much their advice might cost, while more than a third either failed to provide a clear explanation of the service they offer in return for an ongoing fee, or failed to properly outline the customer’s cancellation rights.
In his response, Miller comments that:
“The problem is that even if [the firms] have followed the rules, they need to add up not just their costs in a transparent and understandable way, but also all the other costs.
So even if they were following the FCA rules, it would still be meaningless to the consumer, because the consumer has to add their cost to all the other layers of cost to have a proper understanding of how much their paying from beginning to end. [...]
The whole industry has been allowed by the regulator to put in totally misleading adverts that focus on the annual management charge, so the consumer thinks that’s the fee.
So whereas it used to be a 1.5% annual management fee, [it's now] 0.75%. The consumer thinks ‘that’s brilliant, I’ve saved half the fee’.
But it turns out they haven’t saved half the fee. In fact we’ve worked out the total cost has actually gone up by nearly a third.”
Miller lists all the various fees and charges that are very familiar to dedicated Monevator readers.
He believes RDR has simply increased the confusion:
“Typically 70-80% of the British public want to have it in one number. The FSA thought that transparency meant having lots of different numbers. But actually that’s jut confused things even more.
So the so-called transparency – which we’ve now found out that people don’t even follow anyway – is about as opaque as you can get. [...]
We have wealth managers who have privately said to us they don’t understand the charges, so what hope have the clients got?”
His solution is that there should be further “revolution”, to give consumers one number, adding up all the layers, and delivered “in pounds and pence.”
Miller says such new rules are coming from Europe and will be in force in the UK by 2017. That’s the first I’ve heard of this, so I’d be interested to hear from anyone who knows more.
Test their transparency
Miller is a co-founder of the True and Fair Campaign, which calls for more transparency and simpler fee structures.
He suggests you download the campaign’s template questionnaire to send to your service providers, to see if they can tell you exactly what you’re paying.
From the blogs
Making good use of the things that we find…
Passive investing
The four building blocks of investing success – Abnormal Returns
A lesson in portfolio correlations – A Wealth of Common Sense
Small cap shares in retirement [PDF] – Advisor Perspectives [Via Mike]
Active investing
Howard Mark’s latest letter: Dare to be Great – Oaktree Capital
Get comfortable looking stupid as an investor – Clear Eyes Investing
Stalwarts and susceptibles – Richard Beddard/iii
John Kingham reviews his defensive portfolio – UK Value Investor
Jamie Dimon’s letter to JP Morgan shareholders – Brooklyn Investor
Other articles
A spirited rant on the UK property boom – Simple Living in Suffolk
Getting rich in New York on $65K a year – Mr Money Mustache
Should you pay off your mortgage early? – Ducks in a Row
Product of the week: LED bulbs
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
Passive investing
Most private investors have no idea what they’re doing – Market Watch
Passive investment, active ownership [Search result] – FT.com
Swedroe: Quality works on emerging market stocks, too – ETF.com
Active investing
Should you have invested your pension in a Lamborghini? – ThisIsMoney
Warren Buffett’s diminishing Alpha – New York Times
The tech stocks rout: What does it mean? – Telegraph
Are stalling UK housebuilding shares a buy? – ThisIsMoney
Other stuff worth reading
Is the UK property rise sustainable? [Search result] – FT
Quite right! Inheritance tax is a fair tax on the living [Search result] – FT
The UK Mortgage Market Review may curb high loans – Guardian
“I made £100,000 from Costa Coffee Sharesave scheme” – Telegraph
Does the new renewable heat incentive add up to profit? – Guardian
The slumps that shaped modern finance [Snazzy!] – The Economist
Book of the week: 79p — that’s all it will cost you to buy the latest book from legendary investing writer William Bernstein, provided you have a Kindle. His boiled down take on investing for young people, If You Can: How Millennials Can Get Rich Slowly is aimed at a US audience but most of this stuff transcends nationality. Or you could opt for his all-time classic, The Four Pillars of Investing.
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Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.”