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Bestinvest warns L&G pricing rethink will hike fund costs

Bestinvest founder John Spiers has slammed Legal and General for introducing a new pricing structure which he says will add more than 5 per cent to costs on some of their funds.

Unit trusts and Oeics are usually priced on whether there are net buyers or sellers so existing  unit holders are not affected by other investors doing either. The difference in price is reflected in the buying or selling of the underlying investments in the fund.

From June 7, 2010, L&G has looked remove the volatility by ensuring all buyers pay the buying price, even if there are net sellers that day, while net sellers will receive the cancellation price even if there are net buyers that day.

Spiers says less liquid areas like smaller companies and property can see a spread of more than 5 per cent, meaning the unit price can move quickly should there be a number of buyers or sellers of the units.

Bestinvest says that if you invested £100,000 in the L&G UK property trust, which has a bid price of 39.98p and a 44.24p price for the offer, a £100,000 investment under the new structure would see the value of the investment fall immediately by £9,629.30 to £90,370.704, a 9.6 per cent drop.

Spiers says: “If they want to reduce volatility then they should use some of the capital to provide a ‘box’ position to smooth out daily inflows and outflows.”

L&G managing director of the unit trust business Simon Ellis says the change is because investors could not tell the difference between performance and pricing.

He says: “Investors have asked us to remove the volatility caused by swinging pricing and the best way to do it was to adopt this typical model.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Dennis J Burling ACII APFS 9th June 2010 at 10:35 am

    Yet again L&G have chosen the best option to line their own pockets and are looking after themselves rather than the client or the adviser.
    In the past they were the first to drop initial commission on pensions and would not transfer servicing trail commission for many years, they have recently also removed commission on life plan increments so that advisers earn nothing to give advice on existing plan increases, what else next !

    I for one will not now use L&G unless I absolutely have to and would encourage you all to vote with your feet until L&G get the message that they cannot run roughshod over whoever the feel like.

  2. Great example of how life companies have been shafting the advisers and public for years.

    Their time is up. Move over to passive and stop aligning their pockets.

  3. @Harry

    I think you’ll find LGIM are the (not one of the) largest passive fund managers in the UK. Their institutional class AllShare fund has a TER of only 24bps and is huge.

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