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Much ado about nothing

By Ian Millward, published 02 February 2018.

Candid is a business with a bias for action. We make no excuses for failure, we think independently, work our socks off and are no great respecters of status or reputation. We just do what we think is right. Justin and I often joke that we are reluctant financial advisers and that, if we are going to do this, then we are going to do it our way.

However, there are times when doing nothing is actually the right, and also the harder, decision to make. When things are not going as you want then everyone gets very excited, like to find someone or something to blame and feels a little better if they can see some action. But sometimes, in fact fairly often, the right strategy is to do nothing and just wait for the right way forward to present itself. It invariably does. Let’s took a couple of topical examples.

Alliance Trust Savings (ATS) – is a platform we use for a fair number of our clients. We know their service levels can, at times, leave a lot to be desired and it lacks some of the functionality of other platforms. We know that using ATS is a pretty substantial drain on our resources to watch, check and monitor everything we ask them to do. We also know that clients can sometimes get frustrated with them too and occasionally that frustration ends up aimed at us. But still we continue to use them. Why? It’s because they are cheap for larger portfolios and any other option is usually a lot more expensive. At the moment, if we want to use a fixed cost adviser platform we have a choice of one – ATS. Everyone else charges an annual percentage fee – somehow Hargreaves Lansdown gets away with a whopping 0.45%, but leaving them aside we are still looking at around 0.30% a year for a decent platform. That is fine for more modest sums but our clients typically save hundreds, if not thousands of pounds a year by using ATS.

We know this isn’t tenable for the long term (unless ATS really pulls its socks up) but we also know we can continue to fill in the cracks for now, making sure our clients still get great service and wait for things to change. Either ATS will sort itself out and/or a new entrant will challenge them on price. Failing that we’re fortunate that Justin has the IT skills to integrate our own platform if we really needed to.

Another example of the do nothing strategy is Woodford – or at least for the moment. We have been here before when people were concerned about M&G Global Dividend, First State Global Resources, the Brexit vote and Commercial Property funds. Nobody questions now, that doing nothing was a good decision, but at the time there is a lot of heat and emotion involved so remaining cool and dispassionate is not as easy as it sounds.

We know markets wobble and crash and we know managers will underperform. Both are a given. We also know we can never guarantee a fund manager will recover from poor performance. These decisions are made on a balance of probabilities. But that informs the overall strategy and is why we limit the exposure to any one active fund. We avoid the temptation to chase past performance or chase the easy sell, as many do. And while we won’t get every decision right, you know there are no hidden agendas and all our decisions they are made with clients best interests at heart.

There is a ‘but’ with Woodford. He is annoying us by showing an uncanny knack of buying companies he believes are undervalued…just before they issue a profits warning, with a resulting collapse in the share price. While Woodford is the guy everyone has heard of, there are plenty of alternatives and we won’t hesitate to recommend replacing him in our client portfolios once we’re convinced it’s the right thing to do. Our only issue is that we do want to sell the fund if it is about to bounce – as M&G Global Dividend and First State Global Resources did. Anyway, rest assured the strategy of doing nothing still involves a lot of active thought and debate.