OpinionMar 7 2013

Run ragged by RDR demands and needless errors

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We have been buying the Aviva Property Trust Fund for our clients for the past couple of years on a nil-commission basis. The typical spread between the bid and the offer price has been in the order of 0.67 per cent after all discounts, negotiations and rebates.

Imagine our surprise then when we switched to buying the retail distribution review ready fund (the institutional class) and noticed a spread of 5.75 per cent between the bid and the offer price. I had read that some managers were looking to hike fees on some funds, but this was rampant inflation.

We queried it, of course, and eventually the manager came back saying it had been priced incorrectly. It had been incorrect from 1 January until 14 February, which by coincidence was when we brought it to their attention.

I do not know how many other investors were disadvantaged, or whether any of them had noticed, even so all affected trades will need to be corrected. I wonder whether this is just the tip of the iceberg.

The only reason we were able to spot the error was because we have been regularly buying the fund and could spot an anomaly in the pricing. For no apparent reason the price seemed to have dipped by nearly 6 per cent but the market had not. That was why we looked closer.

Had it been a single fund purchase we might not have looked at the actual spread, expecting it to be minimal. This occurrence though has forced us to check every trade, every price and every spread this year. It is time consuming and should not be necessary.

As though that was not enough, we are dealing with the nonsense put about regarding ‘independence’ and what is largely a ‘passive’ investment approach for our clients. When you get past the headlines it does not actually appear a big deal, provided you have a process that includes all relevant packaged products – even if the process might filter out the majority of active funds. It is the ability to consider the appropriate universe that is important.

Process is one thing, but documenting it is another. We have had an investment process manual for several years, and made several amendments along the way, but it is going through a major rewrite.

We want to ensure that we can show anyone who needs to know how we have arrived at the conclusions. This is a difficult document to create as the potential readership is so diverse. It ranges from the regulator on the one hand, to clients on the other, with professional connections and members of staff somewhere in between.

We have had an investment process manual for several years, and made several amendments along the way, but it is going through a major rewrite

As useful as they are, these are all time-consuming things to do so any additional distraction, such as wrongly-priced funds, is particularly unwelcome. No doubt it will all sort itself out in the long run but, like most advisers I know, we are feeling as though we are run ragged at the moment.

Dennis Hall is managing director of Yellowtail Financial Planning