Fees

Whilst we in the UK are in the throes of Retail Distribution Review by our Regulator, it is interesting to see that Australia (apparently, home of the Wrap) is facing up to similar issues.  The Australian Securities and Investment Commission found in a survey last year that consumers were six times more likely to receive bad advice when an adviser had a conflict of interest over remuneration, even if it was disclosed, and that most investors were unable to tell when they had received bad advice.  Now, you could dismiss this on the grounds that Aussie investors must be considerably less sophisticated than their British counterparts but I would not be too complacent as the average news bulletin in Australia carries much more financial news than those in Britain.  Clearly, the existence of commission has a hugely detrimental effect on the quality of the financial advice received, a fact not lost on the British Financial Services Authority, the Government, the Consumers Association and some financial advisers.

“The question remains as to whether full disclosure is enough to deal with the potential conflicts of interest associated with commission-based fees, or whether there is merit in the industry moving further in the direction of offering advice on a fee-for-service basis.’

It is quite likely that soon every conceivable investment niche will have been covered as Barclays has just launched an ETF tracking Timber and Forestry.  This fund will track the S&P Global Timber and Forestry Index and will come as a welcome relief by all those stressed by their lack of ability to do so.  Most, however, will not find their world rocked by this arrival but it does illustrate a trend, that of Alternative investments.

Alternatives, which include Hedge Funds and Private Equity as well as art and forestry, amongst others, have become much talked about in the last five years, or so.  Popularised by their successful inclusion in the influential Harvard Endowment Fund, they have spread out into many Wealth Management portfolios.  Their supposed benefit is high returns uncorrelated with equities.  There are one or two problems, though.  Firstly, as with all diversification, if everyone does it, the benefits of the diversification are reduced.  Secondly, any prospect for excess returns disappears when everyone piles in, certainly if you are not the first.  Harvard benefited enormously by getting in early and waiting for their imitators to pile in and drive up values.  Thirdly, what works for a multi-billion dollar fund with an indefinite timescale, may not work for those of us with fewer resources at our disposal.  Harvard went out and bought forests, not funds tracking the fortunes of forestry companies.  It is unlikely that forestry shares will exhibit the same characteristics in terms of returns and volatility as actual forests.

However, do not underestimate the power of marketing and investors desire to buy into a bandwagon after it has left town.  That is not to say that their may not be a place for it, it is just wise to manage your expectations.  For those with deeper pockets, their are funds which give access to forestry ownership, albeit with higher costs than Barclays iShare levies; currently a modest 0.65% per annum.