Summary
The Receivers, McGrathNicol, sought, and have received, approval from the Court to appoint a Fund Manager to help manage the assets held on the Platform, whilst the Investigation continues. The main rationale for appointing a Fund manager focuses on the need to manage risks, preserve assets, and to help protect the interests of the beneficiaries.
Since the Platform has been down, client portfolios have been allowed to drift, via natural market movement, from their original weightings, and the Fund manager is there to realign the portfolios, and likely to increase the level of short term instruments held, to reduce the volatility of the portfolios, to help preserve asset values and shield them from large drops, before the funds are ready to be released back to the Beneficiaries.
The Fund Manager is going to take over management of the funds that are in the model portfolios, or at least were supposed to be in the model portfolios (as many Brite clients will have noted, their portfolios do not always match the portfolio they were originally put into, which has complicated the reconciliation process), but there are also many clients who had “bespoke” investments made at their request, and not specifically advised to purchase by a Brite Advisor. These investments will remain, and will not, according to the update, be changed.
Further to this, as confirmed via an update on 5th April, the manager and receiver will not accept or process any instructions on investments from Trustees or Beneficiaries. That is standard for any sort of Administration/Receivership, but the fact that the Receiver has had to release a specific update, is an indication that many clients/advisers are not aware of how Receivership works, nor have read previous statements from the Receiver that such requests will be summarily ignored.
Essentially, the fund manager is going to do two things: rebalance existing model portfolios back to their original weightings, and make sure that any excess cash is reinvested suitably. The Fund Manager will not have Discretionary authority, and all transactions will need to be approved by the Receivers.
Our Thoughts
This is a logical step for the Receivers to make, especially when you take on board how disjointed many client portfolios are, many with excessive cash balances earning minimal interest, all of which means the portfolios are not invested suitably for their beneficiaries risk profile.
Now, many of you who have spoken with Cameron James’ advisers will likely have already heard, or read between the lines, of our rather poor opinion of discretionary fund managers. However, most of that criticism is driven by their high fees and the high fees of the investments they make, not to mention that most of the evidence points to the vast majority of them providing below market returns, especially over any decent time period. However, they have a very limited scope in this situation, and are merely reinvesting back into already chosen model portfolios and/or reinvesting excess cash. The platform also only has access to very low-cost ETF’s, so there are no expensive actively managed funds for them to choose, which is usually where they do their best value destruction.
Whilst it will be important for the Receivers to make sure that the fees charged by the Fund Managers are reasonable, given the hopefully relatively short period of time they will be expected to be advising on the investments, and the limited scope they have, these fees should be not be too high. Although we won’t know just how material they are until they are disclosed, presumably in another update, once the new chosen fund manager has been formally appointed by the court.
What to do now
Again, there is not too much to take away from this announcement. Our guidance is the exact same it has been since the start, which is to go through the advice process with several financial advisers, compare their advice/ongoing service, and then choose the one you want to work with going forward, and appoint them as your financial advisor on your existing investment.
That decision won’t be final, and you can always choose another adviser/route down the road, but it will mean you are as far along in the advice process as possible, and right at the front of the proverbial queue, once the funds are released back to the Pension/yourself, to move to another provider/platform.
If you have not done so already, please feel free to book in to speak with one of our advisers on the link below.
