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  • FIRST POST
    • Jon_W
    • By Jon_W 6th Mar 17, 10:57 PM
    • 108Posts
    • 17Thanks
    Jon_W
    What will a financial adviser do for me?
    • #1
    • 6th Mar 17, 10:57 PM
    What will a financial adviser do for me? 6th Mar 17 at 10:57 PM
    I am reading Smarter Investing by Tim Hale. I coped up until chapter 7 where I found it difficult. 8 was harder and 9 doesn't make any sense at all to me (I am in NO way blaming the book here!!).

    The book makes a rational case for spreading your investments between (high quality, shorter term) bonds and equity (including emerging markets and lower value and risky companies) depending on what you want your holdings to do.

    I don't know where to start. If you said to me 'Go and buy a UK Governmenr bond' I wouldn't know what to do. If you said to me 'Invest in a fund that replicates the FTSE All Share Index', likewise.

    Would I be able to sit down with an adviser and say something like:

    1. I am nearing 40
    2. I have no pension or other assets
    3. I want to invest a fair-sized 5 figure sum so that it grows steadily to provide for when I'm retired
    4. But it needs to be liquid in case I ever need cash for an emergency
    5. This should be split between around 20% in bonds and 80% equities spread like this according to this book( the table 7.9 for anyone who has the book)

    Can you use my money to buy funds to represent this mix?

    Also would those fund managers reinvest the income from the fund back into or does my adviser decide where to invest it?

    What sort of fees will the adviser charge, a flat fee or a percentage of any gains?

    I can imagine some jaws hitting the floor with some of the basic Qs I've asked here!
Page 7
    • badger09
    • By badger09 12th Mar 17, 2:12 PM
    • 4,711 Posts
    • 3,896 Thanks
    badger09
    bowlhead99 you have the patience of a saint
    • Jon_W
    • By Jon_W 12th Mar 17, 11:32 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    As a show of gratitude to Bowlhead and dunstonh I'd like to make a donation to charities of your choosing. Where would you both like me to donate to?
    • bowlhead99
    • By bowlhead99 12th Mar 17, 11:44 PM
    • 6,196 Posts
    • 10,921 Thanks
    bowlhead99
    Thanks, no problem, but make the charity of your choosing. And don't forget to check the box for gift aid
    • stoozie1
    • By stoozie1 27th Mar 17, 11:30 AM
    • 152 Posts
    • 50 Thanks
    stoozie1
    Intriguing. I could definitely do with a crash course. But I note that "[t]he course is up-to-date and covers the current reforms to UK pensions due to be rolled out in 2015..." - I don't want to waste my time on out-of-date legislation.

    Have you done this course? Is it any good? (Is it just the blurb that hasn't been updated, or is the whole course 3-4 years old?) What do you spend your three hours a week doing - is it reading, or watching somebody talk, or what?
    Originally posted by Snakey

    Just a quick update to say that I enrolled on this course, and the material has all been updated to March 2017.

    It is so far very informative and well-written. I am really enjoying it.

    The only (very small) gripe I have with it is that every example used is of male savers, investors and fund managers. Which does lead to a bit of accidental switch off if you are female.
    • Jon_W
    • By Jon_W 27th Mar 17, 1:05 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    I must admit I got lost at week 3 on things like Beta, Alpha and CAPM. I also stopped there because I don't need to work out some of the complicated stuff, I just want to understand index funds investing.

    Also, the course is introductory, but still requires some background knowledge. I might dip-into the later weeks though see if there's anything useful that I can grasp!
    Last edited by Jon_W; 27-03-2017 at 1:11 PM.
    • bowlhead99
    • By bowlhead99 27th Mar 17, 2:39 PM
    • 6,196 Posts
    • 10,921 Thanks
    bowlhead99
    I wouldn't write it off entirely.

    It's worth understanding the basics of portfolio theory and what the role of "betas" might be in managing risk and so on, when you are trying to build a portfolio. When you have simple needs and are going to just get a fund manager to build you a portfolio to a risk rating, it is less important to understand some of the concepts that the course will cover. Although they may/ will get referred to later at different points in the course.

    However, it shouldn't require much in the way of background knowledge as it's a standalone course. You are supposed to read and digest the articles and videos as you go, and they say the time commitment is three hours a week. I'm sure that someone already familiar with the materials can do it in rather less, and not bother reading the user comments or discussions. But the idea is not to simply read every word on the page in order as fast as you can and then get to the end and go, "phew, finished, but I stopped understanding after paragraph two and am not going to go back and look at it again because I'm busy".

    Then you'll only get the same poor results you would get if you enrolled in an A level and never did the homework or asked any questions. You have to take time to stop and digest.

    Later weeks cover things like "investment strategies in practice", "measuring the performance of investments", "lessons from history" "pension planning", "behaviour and risk taking". All of that stuff is useful to have in your head as you start an investing journey even if you are getting an advisor to do the leg work and/or starting with something simple in terms of product type, with the portfolio construction done by someone else.

    Another poster suggested way up the thread that you don't need a course, or a book, as you can start small and read websites and ask on forums like this as you go. There is probably some truth in that. However, when you are not "starting small" because you already have a lifetime worth of cash that you want to invest, there's plenty of sense in trying to do some free structured learning rather than just winging it and having to keep asking basic questions here to get comfortable with different concepts you come across.

    The same bloke on the futurelearn website does a bunch of other ones in related areas. So for example if you're doing "managing my investments" there was also a general "managing my money" and then some "financial fundamentals" courses as part of a different series: managing the household balance sheet ; financial planning and budgeting ; investment theory and practice.
    Last edited by bowlhead99; 27-03-2017 at 6:17 PM.
    • Jon_W
    • By Jon_W 28th Mar 17, 11:13 AM
    • 108 Posts
    • 17 Thanks
    Jon_W
    I *sort of* have a grasp of the absolute basics of portfolio theory. In essence, it is that by combining assets of different classes you can keep return levels higher whilst diluting the risk of a pure equities portfolio by adding bonds. At least I think that's the essence.

    Investing Demystified does a decent (but still a bit to complex to a non-stats type like me) job of explaining. But I don't think I'll be giving lectures on the efficient frontier anytime soon!

    Following on from that, Lars Kroijer in that book says an excellent portfolio would be comprised of (via tracker funds)

    1. World equities

    2. World corporate bonds

    3. World (Sub-AA) government bonds

    4. UK Government bonds (short term, though I suppose inflation-linked would also be okay as his biggest concern is inflation

    His 'best' portfolio would be comprised of the first 3 classes, however, held in proportion to their market value. Not sure I'd want to be without a safety net of UK government binds though, in there somewhere.
    Last edited by Jon_W; 28-03-2017 at 11:31 AM.
    • Malthusian
    • By Malthusian 28th Mar 17, 2:17 PM
    • 1,879 Posts
    • 2,651 Thanks
    Malthusian
    I *sort of* have a grasp of the absolute basics of portfolio theory. In essence, it is that by combining assets of different classes you can keep return levels higher whilst diluting the risk of a pure equities portfolio by adding bonds.
    Originally posted by Jon_W
    Close although it depends what the missing words after "higher" are. (Higher than what?)

    There's not lot wrong with the portfolio you list, which is mostly because it is quite vague.

    Given your level of knowledge you should be leaving asset allocation to professionals, either by taking advice or by using a risk-targeted multi-asset fund if you are going to DIY. If you are deciding your own asset allocation then it should be based on your own knowledge of investment principles and current economic conditions. If you are going to let someone else decide your asset allocation, it is pointless taking an out-of-date portfolio from a book when you can get an up-to-date allocation from a professional at minimal extra cost.
    • Jon_W
    • By Jon_W 29th Mar 17, 9:50 AM
    • 108 Posts
    • 17 Thanks
    Jon_W
    Close although it depends what the missing words after "higher" are. (Higher than what?)

    There's not lot wrong with the portfolio you list, which is mostly because it is quite vague.

    Given your level of knowledge you should be leaving asset allocation to professionals, either by taking advice or by using a risk-targeted multi-asset fund if you are going to DIY. If you are deciding your own asset allocation then it should be based on your own knowledge of investment principles and current economic conditions. If you are going to let someone else decide your asset allocation, it is pointless taking an out-of-date portfolio from a book when you can get an up-to-date allocation from a professional at minimal extra cost.
    Originally posted by Malthusian
    I mean that the returns by adding (quality) bonds are higher than a pure equities portfolio would be for the same level of risk. (I think!)

    Believe me, I am not putting a portfolio together!! Ideally, I would like a multi-asset fund but one which isn't UK heavy so I'm researching that. Or, at most, say a global equities tracker and a UK bonds fund. I was thinking of adding in a corporate bonds fund but I am not sure the diversification benefits are worthwhile because, if equities tank, the corporate bonds are likely to, too.
    • Smed
    • By Smed 29th Mar 17, 2:36 PM
    • 39 Posts
    • 3 Thanks
    Smed
    People on this forum say things like "just put it in Vanguard LifeStrategy 80/20" because Vanguard 80/20 is a decent option for anyone who can tolerate a normal level of stockmarket volatility, and will probably work out OK 80%-90% of the time. We don't need to worry about the 10-20% who buy it, panic in the next stockmarket crash and cash it in, as they can't sue us. IFAs however have to recommend the best option for your circumstances as they are responsible for the advice and if they get it wrong they have to pay redress.
    Originally posted by Malthusian
    You touched on the problem but I agree with your appraisal of I.F.A.s. The problem as I see it is that this is a price comparison website where the lowest cost and the highest return is compared. That's fine when considering interest paying bank accounts, bonds and insurance where the return is guaranteed and can be determined in advance. But the problem in appraising medium to long term investments is that the return is not guaranteed and cannot be determined in advance. So the result of the price comparison of investments is then confined to a comparison of cost alone so the fund or fund manager with the lowest fees is seen to be best regardless of the personal circumstances of the person being advised.
    • bigadaj
    • By bigadaj 30th Mar 17, 9:56 AM
    • 8,764 Posts
    • 5,551 Thanks
    bigadaj
    You touched on the problem but I agree with your appraisal of I.F.A.s. The problem as I see it is that this is a price comparison website where the lowest cost and the highest return is compared. That's fine when considering interest paying bank accounts, bonds and insurance where the return is guaranteed and can be determined in advance. But the problem in appraising medium to long term investments is that the return is not guaranteed and cannot be determined in advance. So the result of the price comparison of investments is then confined to a comparison of cost alone so the fund or fund manager with the lowest fees is seen to be best regardless of the personal circumstances of the person being advised.
    Originally posted by Smed
    Though there are two conflated issues here.

    First there is the option whether to use an ifa or diy.

    Secondly there is the passive versus active debate.

    On the first issue then it's largely personal choice and knowledge, or the ability to accrue it.

    In terms of active versus passive then there are no guarantees but there are historical track records, which stretch across individual managers, funds, fund houses, sectors etc

    Good managers can have bad stretches and short term outperformance can disappear, but it does appear to me that varying between passive and active across different sectors may well be worthwhile. It's rare for an active manager to do well in large cap us stocks for example, but passive funds seem to underperform in uk equity income, and also equity income more widely.

    You pays your money, to a greater or lesser extent, and take a your choice.
    • eskbanker
    • By eskbanker 30th Mar 17, 1:14 PM
    • 4,212 Posts
    • 3,931 Thanks
    eskbanker
    The problem as I see it is that this is a price comparison website where the lowest cost and the highest return is compared. That's fine when considering interest paying bank accounts, bonds and insurance where the return is guaranteed and can be determined in advance. But the problem in appraising medium to long term investments is that the return is not guaranteed and cannot be determined in advance. So the result of the price comparison of investments is then confined to a comparison of cost alone so the fund or fund manager with the lowest fees is seen to be best regardless of the personal circumstances of the person being advised.
    Originally posted by Smed
    While you're right that investment choice shouldn't be largely fees-driven, I haven't really seen much evidence that it is on this forum.

    Yes, the fees are inevitably discussed as they're readily quantifiable, and within a given risk profile or product range why would one pay higher fees for the same thing (so it's appropriate to highlight funds or platforms renowned for high costs), but I think it's an over-simplification to assert that price is seen as the primary factor.

    Any idiot can look up published fund fees but an IFA (or an experienced DIY investor) needs to look some way beyond that when identifying and evaluating options, which is no doubt at least partly why this site (main site not forum) doesn't claim to compare investment prices, to the best of my knowledge....

    Having said that, there are various external sites that do offer a price comparison of platforms but the consistent line on here seems to be that picking the right fund for an investor's requirements is way more important than trying to shave minor fractions of percentages off platform fees.
    • Jon_W
    • By Jon_W 30th Mar 17, 3:20 PM
    • 108 Posts
    • 17 Thanks
    Jon_W
    I met another one yesterday, I liked him.

    His approach is to do a risk profile questionnaire then recommend one of his company's existing models for that risk profile.

    Can't remember exact breakdown (going to post me an original) but it is split between passive funds holding various world equities, commercial property, commodities shares, corporate bonds.

    When the mix strays from the %s in the original mix due to value fluctuations it is rebalanced back to their model's original asset class and country mix.

    IFA charge of 4% implementation and around 1.8% ongoing.

    They also hedge against currency risk. I don't know how and he didn't go into it.

    One meeting a year and risk profile completed. I think I am happy with this. I think I am happy as long as I have a vague understanding about the currency risk hedging.
    • JohnRo
    • By JohnRo 30th Mar 17, 4:41 PM
    • 2,251 Posts
    • 1,990 Thanks
    JohnRo
    IFA charge of 4% implementation and around 1.8% ongoing.
    That's excessive in my opinion, especially the ongoing. Is the 1.8% an explicit IFA charge on the portfolio valuation or a TER type number?

    Either way it's very high.
    'We can't solve problems by using the same kind of thinking we used when we created them.' ― Albert Einstein
    'Facts do not cease to exist because they are ignored.' ― Aldous Huxley
    • Al.
    • By Al. 30th Mar 17, 5:42 PM
    • 313 Posts
    • 252 Thanks
    Al.
    I met another one yesterday, I liked him
    Originally posted by Jon_W
    Whatever most advisers will tell you, we're in sales - you're supposed to like him! Sales isn't a bad word by the way, we just look on it as such. I've had to push really hard sometimes, to sell the right idea to a number of clients, and I do it in a fiduciary way. The client always comes first. They sometimes don't realise it though..

    IFA charge of 4% implementation and around 1.8% ongoing.

    They also hedge against currency risk. I don't know how and he didn't go into it.

    One meeting a year and risk profile completed. I think I am happy with this. I think I am happy as long as I have a vague understanding about the currency risk hedging.
    Originally posted by Jon_W
    4% upfront is tasty, unless you have a small amount and that's how the fee works out. And if you do have a small amount, consider kicking the hedging nonsense into touch. And if you haven't had it properly explained, or if you don't understand it, AND AGREE WITH IT, walk away from it. In fact, no. Run.

    I look at some pension paperwork (Met Life, I'm looking at you boy) and I wonder what planet they're on. Keep it simple.
    Independent Financial Adviser.
    • richyg
    • By richyg 30th Mar 17, 7:20 PM
    • 132 Posts
    • 143 Thanks
    richyg
    FFS

    For the lord sake run away

    "IFA charge of 4% implementation and around 1.8% ongoing. "

    Do anything other than this.

    Go for a Vanguard 60/40 or 40/60.

    Go for a Blackrock Concensus Fund 60 or 80

    Go for shares eg Personal Assets Trust, or Ruffer , or Edinburgh (EDIN.L) or RIT Capital Partners, or even Fundsmith or Woodford (these last two are 100% equity so beware) the others are not and are more balanced and have been around for a long time


    Please just understand the maths. I think you will just make your FA richer at your expense.


    If you put in 10,000 with a 4% upfront then you will end up only putting in 9,600. If your assets grow at eg 3.6% then the FA will be getting 50% of the growth while you take 100% of the risk. , year on year. In a down year you may make nothing, zilch , zero and they will still take 1.8% of your total pot of money.

    I really think you may be best just chucking it all at fund or etf that has a cost of 0.5% or so and just leaving it with them to deal with
    • dunstonh
    • By dunstonh 30th Mar 17, 7:58 PM
    • 87,308 Posts
    • 52,479 Thanks
    dunstonh
    Do anything other than this.

    Go for a Vanguard 60/40 or 40/60.
    Why?
    Our comparable portfolios (in terms of volatility) outperform VLS60. They cost more.

    Please just understand the maths. I think you will just make your FA richer at your expense.
    And paying less could result in you getting less. Costs are a secondary consideration. Not the primary one.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • richyg
    • By richyg 30th Mar 17, 8:40 PM
    • 132 Posts
    • 143 Thanks
    richyg
    Dunstonsh,

    Do they perform better after all costs incurred for an equivalent risk rating ?

    Whilst it wouldn't be an exact comparison , an idea of the funds or shares that made up the portfolio at a date eg 1/7/2012 would at least be an opportunity for discussion. Could you post.

    I would expect that you may take an active approach with your clients and as such the portfolio today might be quite different and as such irrelevant to post but if it happened to be the same event if the % part were a bit different it would still be a great exercise to post it.

    R.
    • dunstonh
    • By dunstonh 30th Mar 17, 10:28 PM
    • 87,308 Posts
    • 52,479 Thanks
    dunstonh
    Do they perform better after all costs incurred for an equivalent risk rating ?
    Yes.

    Whilst it wouldn't be an exact comparison , an idea of the funds or shares that made up the portfolio at a date eg 1/7/2012 would at least be an opportunity for discussion. Could you post.
    No. However, it is not difficult for people to out-perform VLS if they wanted to DIY. I am not doing anything that anyone else could not do themselves as long as they are not blinkered into thinking VLS is the be-all-and-end-all.

    I would expect that you may take an active approach with your clients and as such the portfolio today might be quite different and as such irrelevant to post but if it happened to be the same event if the % part were a bit different it would still be a great exercise to post it.
    The portfolios are rebalanced to a fluid sector allocation. The funds are a mixture of passive and active.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • Smed
    • By Smed 31st Mar 17, 9:09 AM
    • 39 Posts
    • 3 Thanks
    Smed
    Though there are two conflated issues here.

    First there is the option whether to use an ifa or diy.

    Secondly there is the passive versus active debate.

    On the first issue then it's largely personal choice and knowledge, or the ability to accrue it.

    In terms of active versus passive then there are no guarantees but there are historical track records, which stretch across individual managers, funds, fund houses, sectors etc

    Good managers can have bad stretches and short term outperformance can disappear, but it does appear to me that varying between passive and active across different sectors may well be worthwhile. It's rare for an active manager to do well in large cap us stocks for example, but passive funds seem to underperform in uk equity income, and also equity income more widely.

    You pays your money, to a greater or lesser extent, and take a your choice.
    Originally posted by bigadaj
    Confusion. Are we talking here about Independent financial advisers or fund managers or something else? But whichever way, fees and costs are related to the quality of the service provided and service provided by the office boy is likely to be cheaper than service provided by a qualified and experienced manager and good financial advice is always ongoing and active and never passive
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