Brewins urges staff to use retail share classes

"However, she also revealed the trail commission – which is only attached to the retail share classes – is not rebated to clients but goes directly to the investment teams.

‘The trail commission goes to the teams or it is credited to the way the teams’

remuneration policy works and it is in our terms and conditions. I don’t think it’s unfair to clients if you explain that to them and they are aware of it."

So, no commission bias there then.

I really think that Discretionary Managers should clearly document their remuneration policy to clients.

The high ground as far as we are concerned, is to choose institutional share classes where possible and then rebate any trail commission.

We are only custodians and managers of other people's money- there's still a healthy living in following best practice.

The forced sellers argument is complete rubbish. Investment managers that use retail units are only doing so to increase their revenues as the trail commission is a hidden charge to clients.

In my experiance most clients do not properly read their T&C and if they did they probably do not understand what trail commission is.

It must be the case that each portfolio is completely different and all managers have absolute discretion to buy what they like when they like and also sell in the same fashion!!

This is unusual as most dicretionary houses work off risk based portfolios and end up holding very similar assets for each risk class meaning that pooling of investment buys are not outside the realms of possibility. This is more likely for the larger houses (like Brewins).

However we do a lot of trust review work and so many portfolios put together by discretionary managers, hold retail rather than institutional classes for no apparent reason (other than the one most obvious to the cynical).

Of course I am sure that in this instance, Brewins reasons for doing this are as they have stated but if you were to ask the individual clients what the difference was between those classes and what they were paying, there would be at least an element of confusion among a proportion of investors.

I am also sure that despite that earnings in the last year at Brewins were up (and significantly up relative to the increase in AUM) and the mixed reviews on these results as well as the stories about the potential change in ownership, these things are unrelated to this story whatsoever.

The in house bickering that goes on in our profession with regards to remuneration continues to baffle me. We all work to earn a living and clients can't possibly expect us to work for nothing. What difference does it make if our remuneration is called a fee, initial commission, trail commission or any other words for that matter. As long as the amount is fair then who cares what it is called. When did you last ask Tescos how much profit they are making on your weekly groceries shopping or your clothes store, garage, IT shop etc., I sometimes think our profession is staffed by school children.

Its ridiculous for Black to suggest that Fund managers minimum investment into institutional shares is a barrier for a company with £23 billion under management. We are a small Wealth Manager and where possible we always buy institutional units. The Fund managers are happy to accept this on the basis that the aggregate amount invested meets their minimum. Sounds like an opportunity for Brewin's directors to wallow in the pool of rebates

This is a really serious issue here...

Can just hear the patter of FSA arrow visitors... TCF here we come

Quite a few DFMs take the trail to increase their revenue because they are managing the portfolio with a low AMC. I've seen DFM AMCs as low as 25bps, but they are using retail share classes to boost revenue. Other groups have a higher headline AMC but use inst share classes where they can. Its the 'TER' on the portfolio that's important.

Snouts in the trough springs to mind

Brewins also insist that their Investment Managers buy Unit Trusts/OEICS

instead of Investment Trusts because of the Trail for the former - none of course for the latter.

Whilst the Total Expense Ratio (TER) is nice to know; at Altior Vita (www.altiorvita.co.uk) we believe that it is the Total Cost Ratio (TCR) that it is vitally important to know.

The probelm with the TER is that it does not include costs such as bid offer spreads, commissions, market impact costs etc. According to the FSA, these can add 1.8 basis points (bp) for each 1% of portfolio turnover.

See http://www.fsa.gov.uk/pubs/occpapers/OP06.pdf

page 23 table 2

The turnover weighted average spread on the London Stock Exchange is about 75 bp.* In the course of a round-trip trade, a fund will pay the entire spread (half when selling, half when buying). The bid/offer spread thus adds 75 bp to the cost of a round-trip trade. *Source: London Stock Exchange

Trade impact costs added about 25 bp to the cost of a round-trip trade for a sample of large to mid-cap stocks. Source “Transaction Cost Forecasts and Optimal Trade Scheduling”, Quantitative Services Group, Donaldson, Lufkin & Jenrette

Stamp duty increases the costs of a round-trip trade by 50 bp.

Try adding 1.8% to the TER of the average actively managed fund and you will probably get a number well above 3%.

Most people agree that the equity risk premium is only 4%, so is it any wonder that many, if not most, investors have a bad investment experience?

Investment managers at Brewins do run individual portfolios but the stock/units are held in a pooled nominee and given the size of the total client portfolios most fund holdings are well in excess of the minimum institutional holding size. Trail commission has always been a big source of income for managers here and the additional hit to clients is hidden in the T&C. Transparency of charging structures this is not. Treating customers fairly- hardly!

Get the FSA or whatever its called this week in to stop these totally unacceptable practices.

Brewins - hang your head in shame - i will do my best to get the national press to pick this up.

At Myddleton Croft Investment Managers we have always credited clients' accounts with any trail received. However, we always try to use institutional units when we buy collectives. Our fee schedule has always been fully transparent and caters for IFAs adding their trail and/or initial. As, unlike Brewins and most of the stock brokers, we only deal with IFAs it's up to them how they present it to their clients. We have also found that most of our competitors keep the trail.