Handbags make a fascinating play on the rise of consumerism in Asia and a few big brand names should probably be in every portfolio. But which ones? This is the tricky bit. It makes sense to buy LVMH, given how many of the big brands it owns, but consumers aren’t as sheep-like as they used to be (even in China), so if you want to invest, you need to know about niche brands too.
My guess is that most MoneyWeek readers don’t spend that long thinking about which designer dresses are going to kick off among Asia’s youth, so I was initially thrilled to see in Investment Week that there is soon to be a fund that will do it for you. The CHIC fund, to be run by BlackRock MLIM, will invest in “global fashion, services and luxury goods”. Most of the money will be go to “globally recognised brands”, but – and this is the good bit – up to 20% can be invested in companies intending to float, and in small and mid-cap firms.
This sounds great. But as I read on, I went off it. Why? First, because it intends to charge an outrageous annual management fee of 2.7%. You can get away with this kind of thing if you are a hedge fund with a ten-year track record of making 15% absolute returns every year, but absolutely not, if you are a start-up fund investing long-only in overpriced sports shoes and Burberry keyrings. But there was worse to come. The article pointed out what I imagine it thought would be interesting to its financial adviser readers: “commission to intermediaries is available at 6.5%”.
So if your helpful IFA manages to persuade you to invest £10,000 in the fund (and the concept is an easy sell), he’ll get 650 quid up front for his trouble. And that money isn’t going to come out of thin air. No, it’s coming out of your money. This is a shocking example of the corrupting influence of the commission system. Some IFAs, maybe even most, will be able to resist recommending this to their clients based only on how much they get paid for doing so. Some will not. I don’t doubt this for the very simple reason that if it wasn’t true that paying high commissions got you more IFA interest and more investors, why would the likes of Blackrock offer them?
Only fee based IFAs can provide impartial advice
Please don’t write to me explaining why there is nothing wrong with the commission system. I’ve heard every justification there is and none of them are remotely convincing. All good IFAs who want to be respected over the long term should switch to charging fees and all readers who want to be sure they are getting good, impartial advice should use a fee-only adviser. I know these are hard to find – they have no central website – so we’re taking matters into our own hands. By the end of this month, you’ll be able to find a list of fee-only advisers at Moneyweek.com. If you’re an IFA and you want to be on it, email me your details (address below). If you’re one of the readers who has been begging us to do this for months, please be patient: it won’t be long now.
Email: editor@moneyweek.com