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More about the Q approachIf you have been recommended InvestwithQ's services by your independent financial adviser it will not be because of the commission we have promised them - we don't pay or receive commissions. Nor will it be because we have blinded them with past performance data which has little or no bearing on what will happpen next in investment markets. We don't use past performance data to sell our services. It will be because of the compelling logic in the portfolio construction process and investment strategy that InvestwithQ utilises, along with the trust we have built with them by offering a totally transparent service and the experience of our portfolio management team. There is a steady trend away from investing with insurance companies, many of whom like Equitable Life lost the trust of their customers. Investors are migrating into open architect contracts like Self Invested Pension Plans (SIPPS) and self select ISAs. There are clear attractions to a tailor made portfolio versus an insurance company 'off the shelf' managed fund. However, in delivering this, much of the industry focused on commissions and blinded by the slick marketing of big brand fund managers, has lost sight of a number of critical issues. COSTS The current norm for portfolio mangagement, which is of increasing concern to leading industry gurus and the FSA, is to promote portfolios of unit trusts or open-ended investment companies (OEICs) from big brand name fund managers via a unit trust trading platform. These funds come with upfront charges of 5% and ogoing annual management charges of 1.75% and pay very generous commissions to introducing advisers. The total expense ratios (TER) for these funds is often close to 2.0% per year. Whilst many portfolio managers, particularly those online, discount the initial commissions typically 3%, most will pocket the annual trail commissions of 0.5%-0.7% and if they don't, the portfolio platforms they use will. Add to these the portfolio managers fee and fund switching costs and TERs start to hit 3% per year. This all has to come out of your money....no one else pays it. The dividend yield on the FTSE 100 is currently 3.6% and historically dividends have made up almost 2/3rds of the total returns earned from investing in shares. This means many investors are losing about half their potential return by paying what we regard as inflated, unnecessary fees. A recent and worrying trend has been the launch of many so called "Absolute Return" funds by the same managers. Not content with their usual percentage based annual manangement charge these also include hedge fund style performance fees entitling them to a percentage of any profit made, usually around 20% and allowing them to take total fees that could be 3-4% per year when stock markets are rising. InvestwithQ investors pay no initial fees and portfolios are targeted to have no more than 1% annual costs in line with the FSA's preferred 'Stakeholder' cost limit COMMISSION BIAS There is no question that the availabity of generous commissions, particularly the ongoing "trail" commissions on a percentage basis, has tainted the way advisers and portfolio managers construct portfolios. Many use 'wrap platforms' that appear to be free to the customer but who are actually taking a chunk of renewal commissions as their income and these often won't allow advisers to use non commission paying investments. The trading in and out of Unit Trusts is 'clunky' and expensive, many trust managers, even with commissions discounted, will charge 2% initial charges. Unit trusts only trade once a day on what's called a 'forward priced' basis, which effectively means you don't know the price you will get when you instruct the sale or purchase and cash settlement is slow. By contrast when you deal in investments listed on the London Stock Exchange, the New York Stock Exchange and most other mainstream stock markets trading from one investment to the next is fully automated and very competitively priced. High volume shares, ETFs and Investment Trusts have much smaller spreads between buying and selling prices which can go as low as 0.03% on the very big US ETFs and trading costs on line now range from £20-30 flat cost at the top end to $5 at the most competative end and will likely get cheaper. InvestwithQ will only use low cost trading platforms that are sustainable services without the need for soft commssion subsidies and use investments and platforms that trade on the main stock markets - not unit trust dealing platforms PORTFOLIO MANAGERS LOOKING THE WRONG WAY We believe that many advisors put too much emphasis on whether fund manager A will outperform fund manger B and many advisors spend much of their time on this subject alone, rather than on the more important issue of should you be in that type of fund at all. Choosing fund managers is notoriously difficult, by definition 50% will under perform their bench mark index and 50% will out perform. In trying to choose who will be in the top half (not who has been!) there is very little to go on, other than past performance, which is no guide to the future. Just to make matters worse, top fund managers have a habit of moving firms. Also, investment strategies that worked well last year probably won't work well this year. At InvestwithQ we think paying advisers to focus on fund manger selection is a waste of good money. Neither do we believe in investing in complicated funds. Whenever we see the term 'Strategic" or 'Absolute Return' we get suspicious. Share prices will always go up and down, it's a fact of life and if you want to enjoy better returns than a cash deposit account you should get used to this. The easy ways to deal with such ups and downs are the simple and obvious ones:
InvestwithQ portfolios are largely invested in Exchange Traded Funds (ETFs) so no time and effort is wasted on selecting fund managers Tideway Investment Partners who manage the portfolios put the majority of their research effort into deciding on which markets to invest in, which sectors of the stock market to invest in and getting the timing of these investments right - when to buy and when to sell.
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