St James's place wealth management

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  • There is nothing wrong with the underlying premise of the article that higher charges eat into the growth potential.

    Most DFM portfolio's I have seen are heavily weighted into underlying collectives (and there is certainly nothing special about the terms) where the consumer ends up paying the adviser to pick it, the DFM to manage it and the underlying fees of the fund managers themselves.

    The article itself was not based on the jounalist research it came from a firm of stockbroker's, the bottom line is that you need to get a better return if you are willing to pay the fee's for the advisers expertise
  • dunstonh
    dunstonh Posts: 115,904
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    Why wouldn't the DIY investor hold ITs, ETFs, shares, gilts or bonds?

    They may do. However, that was not in the article.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • bowlhead99
    bowlhead99 Posts: 12,295
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    The article itself was not based on the jounalist research it came from a firm of stockbroker's
    What came from the firm of stockbrokers was simply their estimate of typical costs to which you are exposed when using discretionary management services and a comment that you would want them to be delivering a good underlying return to justify that.

    They came up with a range from SCM and Nutmeg using tracker-only portfolios at 1%, Raymond James, Gore Brown and Barclays Wealth and SJP (assuming you don't quit in the minimum term) around 2%, and the highest like the Queen's banker Coutts, or Investec, around 3%.

    What the journalist did, was make a leap - say OK, these DFM prices of 2-3%, let's take the absolute highest we can find at 2.98%. And if DIY including platform fee and actively managed fund fee together is 0.9-1.1%, lets go low end of that and say 0.9%. And then if we make the assumption that the professional wealth managers would select portfolios carrying exactly the same rewards and risks as an average DIYing man-on-the-street, we can simply draw a graph to show what your net return would be if you had a very high fee overlaid on your 'average' return instead of a low fee.

    Well, no surprise, paying a big fee costs more than paying a small fee so let's just fall over in amazement. What a coup from this journalist - he's discovered something shocking! Great journalism there, discovering the not-at-all sensationalist headline that everyone is being ripped off.

    And even better: because people believe what they read in the papers even when they only read it lazily, half the people reading it will go away thinking "The article itself was not based on the jounalist research it came from a firm of stockbroker's" - implying the journalist is simply impartially reporting the truth as reported by the industry itself, rather than doing any spinning for a better headline.
    , the bottom line is that you need to get a better return if you are willing to pay the fee's for the advisers expertise
    No argument there. The subheadline is "Handing over your investment decisions to a professional is far more costly than taking the DIY route ".

    You could replace [investment decisions] with examples from other walks of life too. Putting in a new kitchen. Laying a carpet. Building an extension. Fixing a car. Creating some artwork. I'm sure the owner of Chelsea FC is physically capable of kicking a ball around a pitch but he'd rather pay £250k a week to Diego Costa who is likely to achieve a better result...
    There is nothing wrong with the underlying premise of the article that higher charges eat into the growth potential.
    You're right there, high charges are going to hamper growth potential. If you have a £100k pot, and are a little old lady with disposable income of only £5k a year, you should probably not look to pay 3% of your portfolio as an annual fee for a discretionary manager to find you a wealth management solution. Because your pot is not big enough to need any exotic investment solutions or complex planning, and if you pay a wealth manager £3k a year, you only have £40 a week to live on. You really should look for something cheaper.

    By contrast if you have £5m in a 'play money' pot, you can give it to a wealth manager and give him £100k to look after it, or maybe even take on two full-time members of staff in your personal entourage to look after it, and you are still not going to be scraping around to buy your next tin of baked beans.

    So it's up to an individual whether they can afford to 'splash out' on a luxury such as private wealth management. Wealth services are not designed for people who don't have wealth - they're designed for people who are cash rich, time poor. Unfortunately there will be some people who are not particularly rich but they're inexperienced and think that you need a wealth manager if you are faced with a large lump sum. Actually you may just need some advice or guidance from an IFA, or simply to spend some time reading and researching what investments are all about. You don't need to be perfect at it, as you can afford to underperform the wealth manager by 1% if you spend 1% on your own solution instead of 2% on his.

    Probably where wealth management solutions or IFA solutions are most valuable is not eking out an extra 1% year in the boom times, but simply not losing 60% in a bad year like a nervous DIY-er, when the professionals had a smarter portfolio and only lost 30%. That might pay for years of service.
    Ros Altmann, the Government’s “tsar” for older people, said wealth management charges were “unsustainable”. “The total charge a consumer pays is often really opaque, so there is a danger that savers will have assumed the only bit they are paying is the wealth management charge. In reality the total cost is much higher. I think 3pc is too much to pay,” she said.

    “These charges will do serious damage to savers’ wealth over the long term. They make the investment returns negligible as a significant chunk of the savings is being handed over each year in the form of charges. These savers have to jump a huge hurdle to make a real return on their money. I would like to see these charges come down and fall more towards a total all-in charge of 1.5pc.”
    I think with costs being a lot more explicit these days post-RDR and platform review, overall costs will come down some.

    But it is probably disingenuous for an "old person Tsar" to imply that the elderly are being ripped off and that the market pricing for professional services ought to halve to make it all better. Ignoring the fact that the vast majority of OAPs do not employ DFMs anyway... Many would say that MP wages should halve to give us all a better deal, but MPs would say if you pay fewer peanuts you will get fewer, or lower quality, monkeys. So by analogy, her poor OAPs would stop getting tailored investment solutions; they would simply get a computer algorithm picking trackers for them.

    People can go out and buy an actively managed fund of tracker funds right now from Nutmeg for a percent. Or if they want something more customised and advanced and personal, they can pay half a percent for servicing from an IFA, a quarter of a percent to a platform, and three quarters of a percent to a fund manager. So, 1-1.5% ongoing costs is quite readily available if the OAPs want it.

    Of course, if we are talking about savers' wealth being dealt huge damage by charges for advisers and discretionary managers - in a great many cases the default DIY option is to stay in cash in the best paying savings account that one can find - which is dealt huge but less-visible damage from inflation. Not to mention the huge visible damage that people can do themselves by picking funds of inappropriate risk or investments of inadequate diversification.

    I'm not saying that 2-3% a year for DFM is a good price or that anyone should pay it without trying to understand what the DFM is going to give them access to, that they couldn't access themselves or with the help of a fully independent IFA. Clearly you don't want to pay it if it's only going to get you the same gross returns as you could have yourself for 1% a year. But if it gives you 8% in the good years and -20% in the bad, that's better than you getting yourself 6% in the good years and -40% in the bad. The problem is the returns only being visible with hindsight.

    I've seen the returns for some funds that delivered 20%+ IRR net to investors over a decent period even after taking a high annual management fee and a fifth of all profits as performance fee. And I've seen funds that charge 2% in a year and outperform the index by 45% in a year. But I've also seen funds with high fees fail spectacularly so paying fees is not a guarantee of getting the performance you want.

    I don't use DFMs or IFAs myself but don't have an axe to grind. There is a space for all solutions in a capitalist economy and regulation does not necessarily mean price capping. I do think it is a bit silly to imply that you should look at a graph which is footnoted "based on the same mix of shares and bonds" and compares the highest cost discretionary management with the man on the street. Both the DFM and the man on the street could be picking investments with a pin in a phone book for all I know, but one certainty is that they're unlikely to have 'the same mix of shares and bonds' at all times.

    I would suggest that a lot of the professionally regulated DFMs and IFAs which are charging big money are likely to get a return that ends up being no lower, net, than the investor would have achieved himself - at least not to the tune of 2% p.a. - unless the reason for the lower return was a deliberately lower risk. There are certainly some on this board who have used DFMs and stopped and then saved money and done better on their own and would never go back in a million years. So, they now know how to DIY, or they have discovered the confidence to DIY, a DFM is not for them. It doesn't mean DFM would not be for someone else. But it's niche service and is getting even more niche as people find more flexible DIY opportunities in the mainstream.

    For DFMs to be competitively priced in the modern world for customers who are investing at sub-oligarch levels, they may need to shake up their prices. It probably should be something that they come around to doing themselves rather than being forced into it by a Tsar, if the goal is to have both the providers and the customers be happy with the solution.
  • gadgetmind
    gadgetmind Posts: 11,130
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    dunstonh wrote: »
    The DIY investor would have funds but the DIM would have ITs, ETFs, shares, gilts, bonds etc.

    Most (probably all IRL!) professionals I have met use nothing other than high fee active funds, yet most DIY peeps we see hereabouts use ITs, ETFs, etc.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • gadgetmind
    gadgetmind Posts: 11,130
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    dunstonh wrote: »
    However, even the most ardent DIY investor must see the flaws the article and agree that it is wrong.

    I agree that it's superficial but not that it's wrong.

    To achieve the higher returns they show, you clearly need to ditch high fee advice, but you also need to get asset allocation correct, and you also need to look at avoiding even the "low" DIY fees the article quotes.

    If you get these basics right, then your long term returns should far exceed both the low fee DIY graph and the high fee advised one.

    For the avoidance of doubt, there is probably some advice that can hit the middle ground regards both fees and (inevitably) returns. However, despite me having a decent asset base, all the professionals I speak to want a *huge* chunk up front and high fees as trail.

    No thanks.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • dunstonh
    dunstonh Posts: 115,904
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    Most (probably all IRL!) professionals I have met use nothing other than high fee active funds, yet most DIY peeps we see hereabouts use ITs, ETFs, etc.

    The article is not on about advisers. It is on about discretionary management services. They use direct assets mostly. DIMs do not provide advice.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • gadgetmind
    gadgetmind Posts: 11,130
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    bowlhead99 wrote: »
    What the journalist did, was make a leap - say OK, these DFM prices of 2-3%, let's take the absolute highest we can find at 2.98%. And if DIY including platform fee and actively managed fund fee together is 0.9-1.1%, lets go low end of that and say 0.9%. And then if we make the assumption that the professional wealth managers would select portfolios carrying exactly the same rewards and risks as an average DIYing man-on-the-street, we can simply draw a graph to show what your net return would be if you had a very high fee overlaid on your 'average' return instead of a low fee.

    A simplification, sure, but not a totally unreasonable one.
    I don't use DFMs or IFAs myself but don't have an axe to grind.

    Me neither, as long as the various middlemen are honest about what they can deliver and what they can't.
    I would suggest that a lot of the professionally regulated DFMs and IFAs which are charging big money are likely to get a return that ends up being no lower, net, than the investor would have achieved himself

    Now *that's* what I'd call a big leap!
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • bowlhead99
    bowlhead99 Posts: 12,295
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    gadgetmind wrote: »
    I would suggest that a lot of the professionally regulated DFMs and IFAs which are charging big money are likely to get a return that ends up being no lower, net, than the investor would have achieved himself
    -Now *that's* what I'd call a big leap!
    I don't think it is really.

    For example, you have tried it, found the fees expensive and gone elsewhere for a DIY solution and done OK for yourself. And there are others that could do just that. There are some who have not even tried it and are not going to. So that is one type of person, call them Type A.

    However, not everyone is director level in a tech business with an eye for logic and detail and a head for maths. There will be some who are using IFA / DFM who would not have the mental capacity or the confidence or inclination to go off and learn to manage an investment portfolio competently and independently to achieve professional-level returns across a range of investment classes and tax wrappers without over-risking themselves. So, perhaps those people, if they can afford wealth management and financial advice, may benefit from paying for that wealth management and financial advice rather than trying to learn. So, call that Type B.

    Following your rationale that IFA and DFM is expensive and unnecessary, it stands to reason that the ones who are still paying it are too naive to know what they are getting for their money, and do not know good value from bad value, correct? Such people may be too naive to make sound investment choices on a DIY basis. If it is true that they are paying 'ripoff' rates to someone to advise them on funds and manage their funds and manage their portfolio of esoteric and complex investments, without realising how wasteful they are being, what little they are getting for their money and how poorly their net returns are - when stacked against other rational choices in the DIY arena - what makes you think they would be good candidates to competently build and manage a DIY portfolio for you or me or themselves?

    These ones who don't know good value from bad that we wouldn't want anywhere near our portfolios? That's type C. Like type B, they will probably do better having an adviser find the good value and the bad value in the market and work with asset allocations and portfolio management theories and simply 'lose' 2% a year to wealth management fees rather than 10% a year to poor choices by not knowing value when it smacks them in a face with a shovel.

    And then you have people who have decent wealth to manage and simply do not want to get involved in it, because they would rather be dealing with more interesting pursuits or a rewarding career rather than managing their money. They can afford an accountant and an adviser and a wealth manager. They probably have the mental capacity to do it themselves but they don't want to spend the time - because they don't derive enjoyment from it and they don't want to spend the x hours per month deciding which funds to invest in, how to rebalance, what platform is cheapest, which wrapper needs filling next etc. They would rather be playing golf, securing business deals or doing other things to grow their wealth beyond simply planning and holding some funds. Call them type D.

    So, my contention was that "I would suggest that a lot of the professionally regulated DFMs and IFAs which are charging big money are likely to get a return that ends up being no lower, net, than the investor would have achieved himself".

    Type A investors are not using DFMs and IFAs or if they are, they will graduate away from them as they conduct research, gain confidence etc. That leaves Type B, C, D who are still using DFMs and IFA. My contention is that those people are not getting a worse result than if they DIY'd.

    B: If they did it themselves they could make a mess of it and would be overcautious, overrisky or just not fully understand what they were doing. You could easily see them underperforming an IFA or DFM's portfolio over the long term because they are not operating at a Gadgetmind-level of skill. The professionally regulated IFA or DFM might not choose the cheapest options but he would likely still choose quality, researched options which would give the portfolio a sound foundation - might underperform the well informed and able Gadgetmind due to the level of cost, but would not underperform a less smart, less enthusiastic newbie for a given level of risk, even after the extra layer of cost.

    C: If they did it themselves they would make bad choices because they don't know what value is and what they ought to look for in money management. If they didn't have the 'protection' of the money manager or IFA, they might end up in some unregulated scheme losing everything or in a super expensive and inappropriate fund for their needs or perhaps just in cash because it was easy to understand the interest rate.

    D: If they did it themselves they would not focus on doing it properly because any time spent on it was a distraction from golf or business or family. They are smart but rather than doing a halfassed job and getting 5% they might as well pay someone to get 7% and then pay 2% fees.

    So, overall I am happy with the idea that people using IFAs and DFMs are not really much worse off than if they did it themselves. Certainly there are going to be some more Type As that could get around to dumping the expensive service providers and be better off. As DIY options become more prevalent, more media coverage, even more easily internet accessible and cheap, some will desert the expensive paid advisors and managers. But after they are gone, it only leaves people who want it because they don't want to manage things themselves or they couldn't manage things themselves. Or those who are idiots who don't understand what costs are and therefore are probably not ideally suited to running their own finances.
  • I would be very careful about investing money with St James Place wealth management services. I had a relative that invested money with these people. Unfortunately my relative passed away last year. After probate was gained our solicitor contacted SJP with instructions to sell any existing portfolio that they held for my relative. The first point of contact was in July 15 and despite several attempts to contact SJP we are still awaiting any correspondance. The fact that our representative has been trying to contact SJP for seven months without success is unacceptable.
  • bowlhead99
    bowlhead99 Posts: 12,295
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    SJP have a reputation for being expensive, rather than incompetent. Perhaps their distributed model (service from local advisers, but centralised fund management) makes it difficult to nail down the exact person to wind up the relative's account with the minimal delay.

    I would be asking some pretty searching questions of your legal counsel, on why it has taken him seven months to contact a professionally regulated, FTSE listed wealth manager and obtain a simple confirmation that they received valid instructions to liquidate the holdings of the decreased.

    It's always useful to get first hand feedback on how good the customer service is at some of these big branded advisers, and we have no particular reason to doubt your story, but I wonder if it does not also call into question the competence of your solicitor as seven months to get anything in writing beggars belief.
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