View the article online at http://citywire.co.uk/money/article/a750150
Woodford Equity Income offers 0.65% share class
Fund charges are tumbling. Neil Woodford’s new fund will be available at an annual charge of 0.65% if you pick the right share class.
Investors wishing to get into Neil Woodford’s new fund at a reasonable rate got good news today as his firm confirmed it would compete on price.
Woodford Investment Management, the firm set up by the former Invesco Perpetual star, has unveiled details of his new Woodford Equity Income fund.
The fund will offer four share classes with varying annual management charges (AMC) for different groups of investors when it launches on 2 June (see table).
|Share classes:||A (direct investors)||C (platforms, financial advisers)||Z (big platforms)||X (legacy insurance funds)|
|Annual / ongoing charge||1%||0.75%||0.65%||1.50%|
|Minimum investment / level of business||£150k||£50m||£500m||£1m|
Source: Woodford Investment Management
A ‘C’ share class will carry the new industry standard AMC of 0.75% a year. It will be available to investors buying the fund on most fund supermarkets, online stock brokers or through financial advisers.
There will also be a ‘Z’ share class with a lower AMC of 0.65% offered to big investment platforms that can bring in lots of investors.
A spokesman for Woodford Investment Management said the Z share class was available to any organisation that could deliver large volumes of business. This implies that it is not just a special offer to Hargreaves Lansdown, the country’s biggest fund supermarket, which has negotiated lower AMCs on 27 funds in its Wealth 150+ range.
In practice though, other platforms may struggle to meet Woodford’s terms. According to the company’s website, it is looking for firms who offer the Z shares to introduce up £500 million to the fund.
Will Woodford go lower?
There is a possibility that Hargreaves may convince Woodford to offer an even cheaper AMC as the two sides are still negotiating what its offer will be.
A spokesman for Hargreaves said: ‘We are hoping to offer our clients a lower price than the standard AMC and will confirm prior to the start of the offer period on 2 June.’
He declined to comment on whether the ‘standard AMC’ it was looking to discount was the 0.75% or 0.65% share class.
Either way, the 0.75% is well below the 0.92% ongoing charge taken by Invesco Perpetual on its Income and High Income funds that Woodford used to run. This may encourage more of Woodford's former investors to transfer to his new fund.
Craig Newman, Woodford Investment Management's chief executive, said: ‘We are able to keep our fees low, through the use of modern technology and encouraging investors to use fund platforms, execution-only brokers and financial advice channels, rather than buying directly from us.’
Referring to fund managers who continue to charge direct investors initial charges and higher AMCs, he added: ‘Many investors are still needlessly paying higher fees as a result of buying directly from fund management companies in the past.’
Don't buy the 'A' shares
The Oxford-based firm is discouraging direct investors with an ‘A’ share class carrying an annual management charge of 1% and a minimum investment of £150,000.
The 'X' shares charging 1.5% a year should also be avoided. They are meant for insurance funds still using the old 'bundled' charging system.
The fact that a 1% AMC is considered high demonstrates the revolution that has swept fund management since the abolition of commission payments to advisers and fund platforms last year.
Previously the standard AMC of a fund investing in shares was around 1.5%. Today, investors pay much lower AMCs on their funds but have to pay a separate platform fee on top. Hargreaves offers lower AMCs on some funds but this is offest by the fact that its annual platform fee is higher than rivals: 0.45% versus 0.4% from BestInvest; 0.35% from Barclays Stockbrokers, Fidelity Personal Investing and TD Direct; and 0.25% from Charles Stanley.
For more details see: 'How fund supermarket charges compare'.
Woodford Investment Management has also taken a leaf out of Invesco’s book by absorbing all fund-related expenses into its AMC. This means there is no difference between the AMC and the ‘ongoing charge’ which is the new way investment groups disclose their charges. The ongoing charge does not include stamp duty and dealing commissions, however.
It has also ended an relationship with Oakely Capital Management, the private equity firm which helped Woodford's team set up the firm while waiting to receive authorisation from the Financial Conduct Authority.
A business 'fit for the 21st century'
Watch Neil Woodford talk about his new business, how he intends to run the new fund and the recent fine Invesco Perpetual received for breaches relating to his old fund.
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by Daniel Grote on Sep 26, 2016 at 09:48