In my last post, I mentioned that my portfolio was segmented into funds/unit trusts - what I call 'indirect' - as well as shares (what I term 'direct'). In the depth of the financial crisis, the funds showed a smaller loss vs. the direct part of the portfolio, possibly due to the diversification (there are typically many shares in a fund). However the funds were also the worst performing section of my portfolio as they never managed to reach the highs I've bought them at; it does not help that I have to continue paying the fund managers annual management fees.
My History of Fund Purchases
I started purchasing my funds through an online platform, Fundsupermart.com. These funds have been with me for two years, ever since I entered the workforce. As the initial investment amounts were small, and I wasn't earning a whole lot when I started, I bought into the funds bit by bit, up to when STI was at a level of 3,800. Even as the markets had improved since then, most of my funds are still under water, some to the tune of -40% still!
I never managed to convince myself to sell the funds, perhaps due to their sentimental value, or possibly due to the fact that I didn't want to sell the funds when they were making losses.
Platform Fees at Fundsupermart.com
Today, nonetheless, I sold off ALL of my funds on Fundsupermart.com out of anger. Earlier this year in April, they had sent all unitholders a letter informing that they would start charging platform fees effective May. As expected, there was a huge backlash. A few months later, we were then told that there would be reduced platform fees for longstanding Fundsupermart.com supporters - I'd like to think I was one of them. Well, that happened to be a wrong assumption.
Money market funds constitute approximately 30% of my portfolio and I've maintained this ratio over the past one year, which means I have approximately $100,000 in my Fundsupermart.com holdings. I thought the platform fees were waived till 2011 (due to the public backlash), so I held on to my investments. As the returns on money market funds were relatively low, I didn't expect them to charge platform fees either (especially as the fees for the Cash Fund was waived).
On their website, this is the official reason for applying the platform fees:
Due to anticipated regulatory change, increased number of funds, switches raising our ongoing operational costs, it is no longer possible to subsidise this just from sales charges. Hence, there is a need to have a platform fee which will apply to all cash and SRS unit trust holdings from 1 May 2010. This fee will be accrued daily and auto-deducted from holdings on a quarterly basis at 0.125% on equity fund holdings and 0.05% on fixed income funds.
I don't know if people realise that they had quoted on a quarterly basis; I'm not sure why Fundsupermart.com did that, it seems there was the intent to mislead people, or to show that the platform fees appear lower than they actually are. For equity funds, which typically return 5-6% p.a. in a good year, 0.5% p.a. goes to Fundsupermart.com. For bond funds, which return 2-3% p.a., 0.2% p.a. goes to the platform. This is in addition to the upfront sales charges payable.
Why was I angry?
I suppose I have to thank Fundsupermart.com for giving me the reason to sell off my holdings.
The main source of my anger was that the charge was taken off silently; no invoice or email or any sort of notification. I had not traded on my portfolio and rarely perform switching between funds, so when my portfolio dropped by $70 for the quarter, just for the platform fees, I was totally flabbergasted! Which means for doing absolutely nothing with my funds, I would have to pay over $300 annually to Fundsupermart.com! So much for being a 'silver investor', huh? Not to mention that I had paid over 2% in upfront sales charges when I first invested (as the market was less competitive then and average sales charges were approx. 2.5% - 3%).
But the real thing that upset me was how this process was unilateral; if I had not discovered a lower portfolio value earlier today, I would not have known.
Oh, well, I've learnt a valuable lesson and it was my fault for thinking that Fundsupermart.com would value loyalty. I do not think the charging of platform fees is sustainable for them, slowly but surely they would be losing their customer base - other online platforms such as POEMS and Dollardex offer a similar number of funds with no such fees. While I must admit that Fundsupermart.com has the best website layout, and stronger research, these resources are provided free to everyone regardless of whether you are their client or not. Naturally I wouldn't want to pay a few hundred in dollars annually for a free service.
Anyway I've been performing much better on my direct investments, and perhaps it is time to redeploy my funds in this area. I'll be updating this blog more regularly, so stay tuned!
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