A Different Sort of Fund Supermarket (and Broker)
LONDON -- Brokers -- and their fees -- have been a topical subject in recent months.
Not so long ago, for instance, we had fund supermarket Hargreaves Lansdown (ISE: HL.L) levy a fee of 2 pounds per month, per fund, per account on investors wanting to hold index trackers within their ISAs, SIPPs, or ordinary brokerage accounts.
More recently, low-cost broker Interactive Investor has raised hackles with a move to charge investors 20 pounds per quarter for ISA and ordinary brokerage account investors. And worse, perhaps, is the widespread speculation that we can all expect more of this sort of thing as the FSA-mandated Retail Distribution Review, or RDR, seeks to make brokers' charges more transparent, eliminating "trail commission" and other forms of cross-subsidy.
But one broker that is sanguine about the implications of a post-RDR world is Alliance Trust Savings, the fund supermarket and brokerage arm of venerable investment trust Alliance Trust (ISE: ATST.L) , which in its present form dates back to 1888.
And that relaxed attitude, in simple terms, is because its scale of charges has long anticipated the implications of RDR. In short, ATS has tended to operate a charging structure that charges investors the full cost of the services they consume but rebates back to their account, in full, any trail commission and other kickbacks arriving from fund managers. It's a model that certainly proved attractive to me a few years back, when I was looking for an alternative brokerage account to operate alongside my brokerage relationships with two other providers -- one a leading fund supermarket, and the other a leading online share-dealing service.
As the world of RDR nears, ATS has been flexing its marketing muscles. Not that these -- until recent reforms within the business -- were fully developed, concedes ATS marketing director Garry Mcluckie, who joined the business in 2010 from Standard Life.
"We didn't really have a marketing department as such," he explains. "We've been a bit of a hidden gem, with a message that wasn't really getting out to potential investors."
And that, I have to say, mirrors my own experience. I first discovered ATS on the Fool's discussion boards, and I pursued ATS, rather than the other way around -- which I mention to make two quite distinct points: One, this article isn't an advert for ATS; and two, I have current and past relationships with several of its competitors -- which helps when it comes to making comparisons.
No longer, it seems, is ATS in stealth marketing mode. These days, the business is being more proactive -- and indeed, it suggested via a public relations firm that a conversation between me and Mr. Mcluckie would be a good way of bringing ATS's strengths to the attention of Foolish investors.
And the message is question is simply put. ATS isn't for everyone, concedes Mr. Mcluckie. Investors with smallish pots, for instance -- especially if held as funds within a SIPP -- are likely to find better deals elsewhere. Ditto, I reckon, for investors intent on holding shares or trackers in certain types of account, such as a SIPP.
But equally, he asserts, many investors -- and especially fund investors -- should take a long, hard look at ATS and its charging structures, because it could save them serious sums of money. Likewise, I reckon, for investors with larger share-based portfolios held in ISAs. Indeed, as I understand it, ATS's charge for this type of investor amounts to little more than a single quarter's fee from Interactive Investor.
Horses for courses
I'm not going to repeat here what can readily be found on the ATS website, where those interested can discover ATS's merits for themselves. More germane, perhaps, are the guiding principles behind how ATS views its services to investors, as well as Mr. Mcluckie's responses to some of the questions -- and brickbats -- forwarded to me by Foolish investors aware of our impending conversation.
I've no quibble, for instance, with ATS's ISA fee of 25 pounds plus value-added tax. Heck, that's an awful lot less than I pay elsewhere with a provider charging 0.5% per month.
We don't charge a percentage fee at all, as we don't believe in them. We view percentage charges as a tax on wealth, and unfair. In reality, the costs of administering an ISA account are fairly fixed -- so why should someone with a large ISA pay twice as much as someone with a smaller one?
I do have a quibble with ATS's SIPP fee, though, which has been increased to 135 pounds plus VAT in recent times. Mr. Mcluckie is unrepentant, pointing out that ATS compares favorably with other well-known SIPP providers, once the rebate is taken into account -- provided, of course, that the investor in question is holding funds.
According to Mcluckie:
Our typical SIPP investor has an account worth 75,000 pounds or so. On that, they'll pay 135 pounds plus VAT, but typically get a rebate of 550 pounds or so. Another provider won't charge the fee -- but keeps the 550 pounds for themselves.
That said, investors -- like me -- holding shares or Vanguard trackers in their SIPPs don't get the rebate and must bear the burden of the 135 pounds plus VAT fee.
On the other hand, rebates aren't the sole consideration. If your SIPP provider charges a percentage fee (which ATS doesn't), then ATS can still work out cheaper, even if a portfolio is 100% shares. Just do the sums.
As I say, I'm not going to parrot ATS's website; those interested should check it out for themselves. But the message about fairness and transparency is one that resonates well, and I suspect that we'll hear more of ATS as other brokers move to implement fee increases.
But before bidding farewell to Mr. Mcluckie, I wanted to put to him some of the questions and quibbles suggested to me by Foolish ATS investors. Why no online gilt and bond trading, for instance?
"It's on the development plan, but you can't do everything at once," says Mr. Mcluckie. "There's not a huge demand, and we do offer the service, but over the phone, or by post." (Where, sadly, it's more expensive.)
Why is the commission on international share dealing so high?
ATS offers the service through another provider and must pass on its costs, responds Mr. Mcluckie. That said, ATS's associated forex costs are lower than the market generally, he points out.
And why are some of ATS's transaction processes so complicated, with duplicate forms and so on?
ATS is aware of this, and is looking at it, he responds. "It's being done for the right reasons -- to protect customers from fraud -- but we're re-examining things to see if our processes aren't too robust," says Mcluckie. "If we can make it easier, we will."
Nice to meet you
All reasonable responses, I thought. And better still, Mr. Mcluckie made an interesting commitment. ATS was aware of the Fool's discussion board for ATS customers, he said, but didn't use it to interact directly with customers, in order to respond to their queries and concerns. But in future, he said, that would change. ATS would maintain some sort of presence on the board, although the exact nature of that would need to be confirmed.
Welcome news, I thought. Let's hope it happens.
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The article A Different Sort of Fund Supermarket (and Broker) originally appeared on Fool.com.Malcolm does not hold shares in any of the companies mentioned above. The Motley Fool owns shares in Hargreaves Lansdown.Motley Fool newsletter services have recommended buying shares of Hargreaves Lansdown. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.