Otkritie united investment funds unnoticed by shareholders. Customers lose money, but the company promises income

March 09, 2021 Sergey Kikevich All authors

The management company, without any warning, closed its once popular mutual fund Otkritie Index Moscow Exchange and transferred client funds to the actively managed open mutual fund Otkritie Shares with an exorbitant commission of 4.6%.

In our opinion, this reflects the company's irresponsible policy, focused on deceiving customers and dishonest methods of making profit.

Once upon a time, the Otkritie mutual fund for the Moscow Exchange index (formerly the MICEX index) was one of the most progressive index funds with a commission of 1.00% (the first such fund in Russia). But after Otkrytie Holding’s troubles, the company’s policy changed noticeably. The management company first raised the fund’s commission to 1.3%, and then closed it altogether. Before closing, according to investfunds.ru, the fund’s NAV was 750 million rubles.

What happened?

Financial adviser to the Savings Growth project and shareholder Anton Khmelenko told 360 that he had been investing in Otkritie Management Company for a long time, this was his first major investment. He bought Otkritie - Moscow Exchange Index bonds there - then the commission was 1%.

“A year and a half ago they increased this commission, but I just couldn’t get around to closing these shares and taking the money from there. Last Thursday I went to the office, they told me that they were going through some kind of merger and it was technically impossible to do it. They told me to come after the holidays. The second time I came was on March 10,” he said.

On the way there, Khmelenko had already heard about the problems that had arisen, and the office confirmed them to him. A company representative said that client funds were transferred from the Otkritie - Moscow Exchange Index fund to the Otkritie - Shares fund. It is now impossible to sell shares - according to employees, a certain technical glitch is preventing this. At the same time, the interlocutor noted that he had not received any notifications about the future merger.

Independent financial advisor, director of the Savings Growth project Sergei Kikevich, in a conversation with 360, noted that what happened is typical of what is happening in the Otkritie holding, which had problems. He explained that, in fact, the owner has changed there, and now “a procedure similar to reorganization is taking place,” some branches will continue to sell.

“Now Otkrytie is pursuing short-term goals, apparently dictated by this situation: it needs to generate income and increase it. Few people think about strategically important things for the company, in my opinion, and, unfortunately, they forget about the interests of the client,” he noted.

Investment Director of Otkritie Management Company Vitaly Isakov, in response to a request from 360, said that the merger of the Otkritie - Moscow Exchange Index and Otkritie - Shares funds was not a single isolated event, but the final part of a large optimization of the entire product line of open-ended funds. He clarified that since 2021, the company has reduced the number of funds from 19 to seven.

“This has simplified fund selection for shareholders and allowed us to direct our clients’ focus to those investment strategies in which we see the greatest potential and in which we have greater expertise, in order to obtain the best risk-return ratio for our investors,” noted Isakov.

Trading and Investment Tools

Using , the user can trade in the following instruments:

• Eurobonds;
• stock;
• options;
• Mutual funds and much more.

In addition, the company's management offers services of opening a demo account, margin insurance and the ability to trade using robots.

Information support

Why is this bad?

Khmelenko said that index mutual funds work differently from actively managed ones . In the first case, the mutual fund tracks indices - for example, the Moscow Exchange index, which includes 50 large companies. The fund buys shares of these companies according to proportions - the larger and more expensive the company, the larger part of it is occupied by one share that is purchased. This is how the mutual fund "Otkritie - Moscow Exchange Index" worked

The new mutual fund, into which client funds were transferred without warning, is not index-based, but actively managed. This means that managers make buying and selling decisions.

“Here the supposedly “smart, bright” heads of managers know what to buy, what to sell, when to sell in order to earn as much money as possible. But statistically speaking, actively managed funds do not outperform, but rather underperform index funds. Firstly, this is the human factor, and secondly, increased commissions. Due to increased commissions, investors usually lose here,” Khmelenko noted.

When purchasing units in actively managed mutual funds, investors bear the greatest risks compared to regular index mutual funds. The fact is that in the latter, buying and selling are automatically performed by a computer, so errors are reduced to a minimum. In the case of an actively managed fund, the manager makes the purchases, which means a lot depends on his level of literacy, as well as on how timely he will carry out transactions.

“The mutual fund that was closed is a long-term instrument. They put money there and forget about it for a year, or even more. Shareholders do not go to the company’s website and look there every month to see what it writes in some incomprehensible section. Therefore, unfortunately, there will be people who learn about the situation not today, but, for example, in a year, and realize that instead of earning money, they lost money. This could also happen,” added Kikevich.

It is now difficult to predict in advance how many people will lose. But we can already say that he will not earn enough

Sergey KikevichIndependent financial advisor, director of the Savings Growth project

For example, a person buys shares worth one million rubles, knowing that the commission will be 1.3% - 13 thousand rubles. The money sits there for a while, and then the shareholder finds out that the commission was not 13 thousand, but 46 thousand rubles.

Kikevich noted that Otkritie - Moscow Exchange Index managed approximately 750 million rubles.

“The arithmetic is very simple: the commission was 1.3%, but now it’s 4.6% per annum. It turns out that from these 750 million, theoretically, the company will receive at least twice as much profit. This is not a client-oriented policy, in my opinion, but strategic myopia. Naturally, clients will leave. I think that most of the customers will be lost,” he emphasized.

Bank conditions

Investment parameters depend on the chosen strategy. General conditions include:

• 100% protection of invested money;
• currency: Russian rubles;
• entry threshold: from 100 thousand rubles;
• estimated target profitability: from 11% per annum;
• management fee: from 0.5% of the value of the assets included in the portfolio (written off upon conclusion of the agreement, returned after the end of the investment period);
• fee for early withdrawal: 5% of the value of financial instruments transferred for management.

The bank carries out all the nuances of service independently.

Income should increase

According to the investment director of Otkritie Management Company Vitaly Isakov, the Otkritie - Moscow Exchange Index index fund was much less popular among clients than the flagship actively managed fund Otkritie - Shares. He emphasized that over the past three years, the annual attraction to the first fund amounted to 432 million rubles, and in the second - almost 2.1 billion rubles.

“The reason is that over the long period of management of these funds by the current asset manager (since 2013), the Otkritie - Shares fund has shown a higher net return for its shareholders compared to the index fund, despite the higher commission level,” emphasized He.

According to Investfunds for 2021, the following profitability indicators were:

"Otkrytie - Shares" - +17.83%;

"Otkritie - Moscow Exchange Index" - +13.62%.

For 5 years (from 02/29/2016 to 02/26/2021):

"Otkritie - Shares" - +153.75%;

"Otkritie - Moscow Exchange Index" - +127.21%.

For the entire period of management of the current asset manager (from 12/31/2012 to 02/26/2021):

"Otkrytie - Shares" - +220.90%;

"Otkritie - Moscow Exchange Index" - +195.46%.

Real reviews

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Employees

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Was the law broken?

Investment Director of Otkritie Management Company Vitaly Isakov noted that shareholders are notified of the merger of funds through a publication on the website of the management company, which must be made no less than 30 days before the merger itself. He emphasized that the company fulfilled this condition and published information about the upcoming merger on January 30, 2021 on its website. On March 2, another notice appeared - about the suspension of accepting applications in connection with the merger of funds.

According to Khmelenko, the announcement of the future merger was placed on pages of the site where no user visits. However, clients did not receive any calls or notifications.

“People (for example, like me), they still live and don’t give a damn, thinking that the Otkritie - Moscow Exchange Index was purchased from them. Accordingly, for the entire time they don’t know this, the management company takes increased commissions as earnings,” he explained.

The independent financial advisor and director of the Savings Growth Project emphasized that instead of notifying all of his clients by mail or through calls, as many others would do, he simply published the information on the website. Thus, the management company “complied with the letter of the law, without actually breaking anything,” and transferred its clients from a fund with a low commission to a fund with a very high one.

The interlocutor noted that he recommends that all shareholders leave Otkritie, since the company treats its clients this way.

“Unfair attitude towards their clients. They increased the risks - initially, when a client buys a fund, he determines for himself the risk level of this fund and looks at the commission. Most likely, they wanted to play on this. It’s strange that such things began to happen to them,” he said.

Vitaly Isakov explained that the law does not oblige management companies to send mailings to shareholders to inform them about the impending merger of funds.

“The requirement for mandatory individual reporting is not provided for by the current legislation regulating the activities of mutual fund management companies, the standard rules of trust management of mutual funds and the rules of trust management of the Otkritie - Moscow Exchange Index open investment fund of market financial instruments,” he said.

Additional company services

Education

A novice trader can choose one of the convenient training formats: face-to-face, individual or distance learning. Moreover, a huge number of seminars and online courses are offered free of charge.

In addition, a beginner can “hone” his skills on a special stock exchange simulator and take tests to consolidate the material. Well, of course, the broker also has a demo account.

Investment Tools

For those who do not plan to trade on their own, the broker offers a bunch of investment products.

For example, “Model Portfolio” is managing your investments “according to tips”, without trading experience or market knowledge. And “Structured Products” are a good alternative to bank deposits with a potential return of up to 30% per annum.

How to protect yourself

Kikevich emphasized that it is now very easy to avoid such a situation.

“We have long recommended moving from ordinary open-end mutual funds, in which there are very few index funds left, to exchange-traded funds. Units of these funds can be bought or sold on the stock exchange, but cannot be redeemed at the office. According to the law, the management company cannot, by its own decision, take and exchange shares of one exchange-traded fund for shares of another. Only the investor himself can sell these securities and buy others with the proceeds,” he explained.

An independent financial advisor and director of the Savings Growth project clarified that in this case there is automatic protection against such situations in the future. However, even then it cannot be said that a person is 100% protected from abuse of the Criminal Code, because there are other ways to “put the investor in a not very pleasant situation.”

Broker Features

The Otkritie broker offers three options for managing an account: independently, semi-automatically, and with full transfer of control to the management company.

The broker provides access to the following tools:

• Russian shares and bonds
• Foreign stocks and bonds (securities of American, European and Asian companies, as well as Eurobonds)
• Currency on the Moscow Exchange
• Options and futures

There are two terminals available for traders to work with:

• QUIK – for access to trading on exchange markets through a broker in real time
• MetaTrader 5 – for trading in the FORTS section and on the MICEX

There is no minimum deposit to start trading (the recommended amount is 50,000 rubles).

Deposit/withdrawal of funds is carried out quickly, the regulations are observed. For withdrawal of funds you will have to pay 0.5%. You can top up your trading account by bank transfer, cash, transfer from another broker’s account and transfer from an AS Sbercard bank card.