How do you decide who to entrust with your investments? We had to think of this recently when we launched a new service for private investors. How will our customers think. It is always difficult as a business working out prices.
When you choose a fund to manage your investments, you do not want to pay anything in fees of course. Moreover, if you do, then you ask yourself that you do not want to pay anything if they make a loss in the investments. We agree with you.
So we thought, well what if investors paid once and then didn’t have to pay again for say three years? That would be the upfront model and allows us to keep costs really low. However, of course, some customers do want to pay each month.
So then we thought why not let those pay a monthly fee? However, then some customers only want to pay when they make a profit. So then we thought why not charge people a share of their profits? However, some people do not want to share profits and others do.
So we thought why not only charge fees in the month's people make money and no fees when they do not?
So we took all these ideas to be innovative in pricing, and we came up with our trading software which over the past 12 months delivered a 75% return. And we said even though we are profitable 10 months out of 12, let’s assume we will only be profitable half the time. So let’s charge people only for half of those 12 months. It was nuts. Actually, like most good ideas, it came from a customer.
It is really hard in fund management to know how to price your services. People do not want to pay even though you could make them lots of money. Other people told us they do not want to be ‘locked in’ – or pay an entry or exit fee. That too made sense to us.
When you consider making investments yourself, think about these things:
Are you locked in?
Can you see the trades made in your name, live, online 24/7
Are their entry or exit costs?
Can you pay only in the months they are profitable?
If you pay upfront, is it cheaper, as with British Gas!
We really need in the fund management industry to learn from the way everyone else in other fields does things – because we do not know it all. Even though many in my industry do think they know it all!
The service we launched – allowing people to copy the trades of a hedge fund – www.tradermindquant.com
