fund of funds

brodev

Background to my question.
I have had money invested in ISAs for growth via BestInvest for some years and I have been happy. I retired a couple of years ago and I did not feel confident to do an income portfolio so I changed to a BestInvest management system with which I have been reasonably happy. BI have recently advosed me to go with their MAP product which is basically a fund of funds. I decided that they were not experianced with this and declined. But, this made me think that perhaps a fund of funds is where I should be.
Now my question.
I do not need an IFA to decide my risk exposure as I prefer to do that myself. I have about £100000 in ISAs, I want 4-5% per annum and my risk category is middle to high.
When I go to an IFA and he does what he does does that not equate to a FOF? If this is the case would I not be better going to a large company for my FOF? If again this is so does anybody have recomendations where to look. TIA

dunstonh

When I go to an IFA and he does what he does does that not equate to a FOF?

No. A fund of funds has a second layer of charges which would not be present on the IFA building the portfolio. FoFs are lazy investing and whilst they do have their place, I wouldnt want one with a £100k portfolio.

brodev

Thanks dunstanh. Perhaps I should have phrased my question differently. If I go to an IFA then, naturally, I have to pay him in some way. To me this is a layer of charge. If I use a FOF via an execution only broker then I don't have IFA charges although I have the FOF charges. In one sense I understand that FOFs are lazy for me but so is an IFA. I am looking for the most cost effective way of getting a portfolio suitable to me.
Scenario 1. IFA selects "X" amount of funds. I pay him at least 1% + vat per annum
Scenario 2. FOF selects "X"amount of funds, extra layer of charge approx 1%. no vat.
What is the difference? Surely the FOF manager has more visibility as to their efficiency?
I do appreciate I am over simplifying things but what are the flaws I am not seeing?

dunstonh

If I go to an IFA then, naturally, I have to pay him in some way. To me this is a layer of charge.

The IFA is paid out of the annual management charge.

If I use a FOF via an execution only broker then I don't have IFA charges although I have the FOF charges.

The FOF has the charges of the funds it reinvests into as well as the extra charges of the manager running the FOF. Whilst the manager will get some discounts on the funds purchased the cost will be higher than using the individual funds. Look at the TER on some of these FoFs.

Scenario 1. IFA selects "X" amount of funds. I pay him at least 1% + vat per annum

Advice that results in the purchase of a product does not require VAT to be charged. Plus, 1% p.a. is higher than you would expect. The IFA would take the natural trail commission from the fund which is typically 0.5%. That is taken out of the AMC and not in addition to it.

Scenario 2. FOF selects "X"amount of funds, extra layer of charge approx 1%. no vat.

The FoF still pays 0.5% trail. So even with a discount broker, they are keeping some of that. There is the charge for the FOF manager and the underlying funds.

Surely the FOF manager has more visibility as to their efficiency?

Possibly. You can only tell what an IFA is like after you use one (or in the run up as you can tell quality by the presentation most of the time). However, you are paying for that visability in higher costs. The IFA will risk assess, rebalance and review. The FoF manager will run the fund within the remit of the fund aims and objectives. These may or may not match your aims and objectives so a spread of FoFs may be required.

brodev

Thanks again dunstanh