Well, now the silly season has passed us by, we can all get back to some serious work.
I must confess to having caught the millennium bug, at least something must have caused me to feel so unwell on January 1. Others I know went from Y Too Kay to Y Puke Ay in a matter of hours.
Well, now the silly season has passed us by, we can all get back to some serious work.
I must confess to having caught the millennium bug, at least something must have caused me to feel so unwell on January 1. Others I know went from Y Too Kay to Y Puke Ay in a matter of hours.
Talk about a beat up.
It’s funny how most of the Y2K specialists around town have suddenly racked off. From being able to charge $200 an hour in the last minutes of ’99 “just in case” and popping up on everything from a Current Affair to Judge Judy, most are now as rare as a Sydney taxi on a Friday night or a BDM after a fund manager reports record outflows.
It just shows how vulnerable and paranoid we are when it comes to our own precious systems. We go to extraordinary lengths to protect our databases and records but sometimes, things don’t work out.
These things come up and bight you on the bum — just from where you least expect them. Like master trusts.
Now I’ve always been wary of new things. Hell, we West Australians have only just discovered the battery-powered wireless.
Some time ago, my former dealer group began swelling in the nether regions when they launched a badged master trust service.
I thought I was missing something. No swelling.
This master trust was supposed to revolutionise my client work, give me more time to do the things I really wanted to do with my clients and allow me to entrust all of my reporting requirements to those who new best.
Yep.
In version 1 of this article, I actually NAMED the master trust involved in this heinous crime. Money Management’s legal people and my therapist have since convinced me that my new year’s resolution should include trying to be nice to fund managers. Therefore, the organisation in question shall be known as: “A Big Ugly Master trust who employ Scary lawyers (BUMS)”.
Well, things started okay until I started looking at the fees. Now folks I’m a simple soul but help me through with this. BT retail would charge a client 1.8 per cent a year to look after the funds in a managed super fund. If I invest in BT through BUMS, I’m up for a 1.5 per cent fee (yeah yeah, depends on how much) plus BT’s 1.0 per cent which makes a grand total of 2.5 per cent. Trail is the same plus my client gets to go to the BT roadshow where they tell him why Principal is so good followed by a cup of tea and a curled up sandwich.
Now, just as you all start to get excited about switching funds and the simplicity of single reporting, do the costs actually justify the additional service provided?
I wonder.
As time moved on, I saw a few occasions where I thought I could justify the use of a master trust. Not quite a swelling but, being faithful to my dealer, we put a few bob into BUMS.
Newton’s first law of Gravity tells us that what goes up must come down and Austin Power’s second law of reality tells us that what goes in must come out. In the case of BUMS, count on a very, very slow out.
Readers may recall my very dear client Mr Z. Well, Mr Z referred client Mr G, because of the great work I’d done for Mr Z (and I let his dogs sit in reception).
Mr G was convinced that aliens had abducted his first wife and that Centrelink was conspiring to pinch his money because they dropped his Pension $5.20 per fortnight after a small inheritance.
Anyway, Mr G wanders in late in October to announce that he had decided to purchase a house.
“I gut Kesh to offer yeah.” Right.
We explained how yes, we would send in a redemption request and 5 — 10 days later it should be sitting in his account.
“Goot — do it.”
So off goes the fax to our dear dear friends with a settlement scheduled for three weeks later.
The first sign of trouble should have been when I received a call three days later from Mr G saying he had received a letter saying the master trust administrator would not action the request until they received an original request. No matter that the fax had the dealer’s name on the top and they had my number, they didn’t call me to tell me about the “outstanding”.
So, off goes the original.
Two days later I received another call from Mr G.
“Hey Nik, ze bastards won’t giff me de money”.
Mr G went on to explain how the master trust had written to him, telling him it would take a month to redeem his funds.
“My bloody house vill settle, ver is de money”
So, after checking the sky for Aliens, I rang the master trust who immediately told me to refer to page such and such of the prospectus and that the prospectus allows for up to 28 days to redeem funds.
Now, I had always put these clauses into the same category as “we can increase the MER to 5 per cent if Elvis reappears”. I had never expected this to be actually invoked -particularly when virtually all of our retail fund requests are generally processed within 72 hours.
I went red, purple, green, yellow “talking” explaining the small problem regarding the settlement, the need for funds etc.
“I’m sorry, it’s clearly explained in the prospectus.”
I then went on to enquire what value might be assigned to the funds. I was politely advised that they won’t know what value will be assigned until they receive the unit price of redemption after it has happened.
“So what you’re saying is, it can be any unit price over the next 28 days?”
Now readers, this is scary stuff indeed. In case you hadn’t noticed, there is a degree of volatility creeping into markets of late and 28 days between request and redemption gives us a just a wee bit too much chance for things to go wrong if we decide to make a few changes.
Having explained to the poor customer service person just how the prospectus might be also adapted for use as a medical appliance and how he might test it, I resigned myself to “managing” Mr G’s problem.
Now, with what will surely go down as some of the most serious questions asked in Front Line for some time, we ask just what additional benefits do we as advisers and consumers actually get out of master trusts and wrap accounts?
Sure, in a few cases we’re able to switch between fund managers and products. I wonder though, how many switches are actually effected per year on the average account?
If the benefits of a portfolio admin system are based on adding value through fund selection and asset weighting, why do diversified funds exist in these services? Couldn’t you achieve the same outcome at a cheaper cost using the retail version?
Are the benefits of this switching offset by the ridiculous waiting times for redemptions?
Would it be cheaper having an accountant sort out the additional paperwork of multiple investments rather than having a consolidated report?
How much does your speedometer vary in accuracy as your tires wear down? Did GIO have any exposure to the Mars Polar Explorer? What REALLY happened at Guyra?
These are all pretty deep questions and who knows, we might even get a few letters to the editor. One thing is for sure. This little bunny is going to be really, really careful about using Admin Products in the future.
See you soon
