Quinn Life SSIA 1 Year On

1% charge

Hi Dogbert,

While you may be right, I'm not convinced. I strongly suspect that their charging structure works more like the following:

Quinn-Life tot up the total value of their fund on the close of business EACH DAY. They then calculate 1% of this total value and take it from the fund, putting it aside as PROFIT (meaning, of course, that the value of the fund available at the opening of business the following morning is reduced by the amount deducted as PROFIT the previous evening).

Once Quinn-Life siphon off their 1% EACH DAY, they then divide the reduced fund's value by the number of units in the fund and this figure becomes the new unit price (i.e. the unit price they work with when new investors want to but in, or old ones want to sell out). Mind you, I suspect that the fund's unit price quoted in the daily papers are the gross values (i.e. the price of each unit before Quinn-Life have scooped off their bit of PROFIT).

Anyway, the point is that I believe a FULL 1% is deducted from the fund's value at the close of business EACH AND EVERY WORKING DAY.

I certainly don't mean to labour the point but we have a couple of conflicting views here about charging already. Doesn't it seem absurd though to think that we are prepared to put large amounts of our hard earned cash into a fund and not really be ABSOLUTELY CLEAR in our heads as to how the fund company will charge us for their efforts in managing it?

Auburn.
 
Management Charge

Hi Auburn,

Nope, I don't think there's any possibility they're doing what you suggest. Practical proof ? Well, it's a bit late at night for me for any advanced maths, but in markets which have fallen 30% (as they have), there'd be virtually nothing left if Quinn were siphoning off 1% per day as well. But in fact their funds are down pretty much in line with the markets they track.

If they are doing as you suggest, then it's no wonder Sean Quinn was so keen to enter the unit fund market, and amazing that he hasn't launched a PRSA yet. Seriously, investment managers operate the way I outlined, and I'm sure (though I don't know for a fact) Quinn Life do too. Their funds may be examined by their auditors ... why don't you call and ask them for chapter and verse on this, including any external validation, if that's what it'll take to satisfy you.
 
Re: Management Charge

Once Quinn-Life siphon off their 1% EACH DAY
Click to expand...

This is rubbish - You're telling us that QL take an annual (1%) fee every day - There would be nothing left in the fund at all at the end of the year.

A quick spreadsheet calculation shows me that €100 in the fund would be reduced to €8 approx at the end of a 250 working day year, if they deducted 1% each day. Their actual results are nowhere near this.

Auburn - Are you involved in the financial industry?
 
1% charge

Hi,

No. I'm not involved in the financial services industry. I'm just curious about the charging bit.

Maybe what I am suggsting is ludicrous, but it seems to me when I do my maths that 1% per day averages out at 1% per annum!

Let's take 5 working days, Monday to Friday, and we'll make up some numbers.

At the close of business on Monday, the value of the fund is €1000. Quinn takes 1%, which amounts to €10. At the close of business on Tuesday, the value of the fund is €800. Quinn takes 1%, which amounts to €8. At the close of business on Wednesday, the value of the fund is €70. Quinn takes 1%, which amounts to €0.70. At the close of business on Thursday, the value of the fund is €500. Quinn takes 1%, which amounts to €5. Finally, at the close of business on Friday, the value of the fund is €1480. Quinn take their 1%, which amounts to €14.80.

The figures I'm putting on the value of the fund each day doesn't matter.

The point is this.

The daily average take from the fund by Quinn Life over the 5 days is €7.70. The average daily value of the fund over the same period is €770. The average daily take as a percentage of the average daily fund value is (€7.70/€770)X100 = 1%. If we simply extend out this exercise over 250 business days, then we will get the same result: i.e. by Quinn Life taking 1% of the fund's value at the close of business EACH WORKING DAY, their AVERAGE DAILY TAKE (over the 250 days) expressed as a percentage of the AVERAGE DAILY FUND VALUE (over 250 days) will still amount to 1%.

If, as has been suggested, Quinn only take 0.004% (1/250) from the value of the fund at the close of business each working day, then this means that the AVERAGE DAILY TAKE over the 250 days will only amount to 0.004% of the AVERAGE DAILY FUND VALUE.

To put it another way, it's the same thing as Quinn taking nothing from the fund at all during the year. They just wait until the end of the 250th day, they calculate the AVERAGE DAILY FUND VALUE and then take just 0.004% of it!!

Or maybe I've completely lost the plot.....!!!

Auburn.
 
Re: 1% charge

What you're describing there seems to be some sort of rolling average approach to calculating the management charge as opposed what you said earlier - i.e. that they take 1% every day.
 
Re: Management Charge

The daily average take from the fund by Quinn Life over the 5 days is €7.70. The average daily value of the fund over the same period is €770. The average daily take as a percentage of the average daily fund value is (€7.70/€770)X100 = 1%.
Click to expand...

This is mathematically correct, but it's totally irrelevant. Of course, if you take off 1% each day and look at the averages over 5 days or 250 days, then it still looks like 1%.

But you really need to look at the cumulative value of the fees taken, not the average. In your daily model, the fee taken is real cash taken out of the fund each day, so you need to take the cumulative value.

But you can't take the cumulative value of the fund each day, because it's the same money each day.

So the relevant calculation with your 5-day example, is the cumulative charges for the week (€38.50), as a percentage of the average fund value €770, which shows that a total of 5% of the value of the fund has dissappeared in fees in the week. If you do this over a year, you'll see that your model would take a total 92% of the value of the fund over the year. It just doesn't work that way.

You could possibly take the cumulative charges for the week (€38.50), as a percentage of the final fund value €1480, which would give you a total 3%. But this is really due to the wide, unrealistic variations in the fund value over the week. In reality, the two figures would be quite close, regardless of whether you use the average value or the final value.

By the way, why did you single out Quinn Life on this inquiry into fees - Surely you'd have the same concerns about any administration fees for any fund management company?
 
Management Charges

Sorry, Auburn, but you really are missing the plot. Quinn's management charge is 1% per annum taken daily. This is ever so slightly less than 1% per annum taken once a year.

Let's take an example. Imagine there are 1 million units at the start of the year and that there are no unit transactions during the year. Then 1% p.a. taken once during the year would give the company 10,000 units worth of value. Note that this is true whether the deduction is made at the beginning, end or any other time during the year - this is not about the time value of money.

Now 1% p.a. taken daily is 1/365% every day for 365 days and would yield the company 9,950 units worth of value - 50 units or 1/2% (of 1%) less than taking the charge once a year.

Reason is that as each daily management charge is levied the amount that is left to take the next daily management charge is ever so slightly reduced.

The reason companies take (or accrue) the charge daily is to prevent situations where policyholders would perceive it as worth while to time their transactions. Thus is if was take out once a year - policyholders would cash in the day before the charge is taken and reinvest the day after.
 
You're absolutely right!

Hi,

You're absolutely right! I certainly have been missing the plot completely! I feel a bit foolish!

The last few comments make perfect sense to me now.

With full clarity on the charging structure, I can sleep easy in my bed tonight!

Thanks Dogbert, Rainyday, Clubman & Blondie for your help.

Auburn.
 
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