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Fisher Wealth Management
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The fact that there is a commission involved is a conflict of interest in itself. Some financial advisors will be more tempted than others but it is likely to influence some, if not all, regardless. Bear in mind that most portfolio managers, not just IFAs, use 3rd party products and as such, will be open to the search when you look at how many complaints involve such providers when you look at the Portfolio Management department in the FOS, not the FOS as a whole.Well, I'd like to see your evidence that there's any commission bias first. That way we can look at how many cases become FOS complaints, and from there we can look at how many are upheld. Otherwise the link has been posted here previously, but I don't really have the inclination to go looking for the specific page on the FOS website for you right now.
Please stop referring to me as you (i.e. FWM). I don't work there anymore.So a customer holding nothing but cash for a year would still pay their full fee with you? It might not be a conflict of interest, but it certainly sounds like an incredibly expensive savings account. You presumably can't count NS&I products as assets under your management, do you recommend those on a regular basis or is there a conflict of interest because that represents a chunk of your fees walking away from you if you advise the client to fully utilise such savings vehicles?
Yes, clients have held cash/fixed interest for over a year before with the intention to reinvest in equities. And they have achieved higher returns than cash over the period so it was worthwhile.
This just made me laugh. You unknowingly stumbled into my pet hate of why I hate most funds/IFAs.You'll get a bespoke equity portfolio through an IFA. The only difference is that the bespoke part will be in the funds used and the amounts invested into each sector. You'll also have the added advantage that each of the funds is then managed by someone whose job is solely to know his sector and to do the best he can to maximise profit in that sector. Yes, it's an extra layer of charges, but it's better in my view to have that local expertise separate to the overall investment strategy.
1. How is a retail fund bespoke to a client? Its not.
2. If I get a Japanese Industrials fund and Japanese industrials are heading nowhere but down, will the fund manager either call me to tell me to sell out of his fund or invest his fund in 100% cash and fixed interest? No. Neither. The IFA won't tell me japanese industrials aren't the place to be because he's not an investment expert so the decision rests with me. I'm not an investment expert because I'm using an IFA... As far as I am concerned, the only funds worth looking at are global funds with enough flexibility to be 100% invested or cash as they see fit. And I'll buy that direct, thanks.
You need to go and read Determinants of Portfolio Performance by Brinson, Hood and Beebower. You'll probably dismiss it since it goes against everything you have 'learned'. However, it is a massive study lasting several years based on empirical evidence. Its conclusion is that portfolio performance is based primarily (70%+, some say as high as 90%) on asset allocation. Now I don't mean something like 60% equity, 25% bonds, 10% cash, 5% alternative. Static, balanced portfolios are destined to underperform in the very long term. I mean be in equities when equities are doing well and in cash or bonds when they're not.
20% or less is based on the style (i.e. geographic, sector, big cap/small cap, growth/value etc.). So having a specialist, frankly, is NOT worth the extra layer of fees. 10% or less is on security selection.
All the usual tricks. WithProfits and Endowments, structured products, commercial property, funds, fund of funds, fund of hedge funds etc.What products made up this 5-6% TER portfolio?
1. Have you ever even done any Monte Carlo analysis? Any at all? I know its based on historical data but most performance projectors are. Over longer time horizons (ten years or more), equities historically provide the greatest return, outperforming bonds in 98% of the 20-year rolling periods since 1926. Even at only ten years, equities beat bonds nearly 90% of the time.That's an overly generalised statement. Someone with a low risk profile 8 years from retirement absolutely should not be 100% in equity. In fact, putting them 100% into equity would be grounds for an upheld complaint with the FOS if they later realised what had been done. Someone that close to retirement would be better off sheltering more and more of their portfolio in cash and fixed income as time passes to avoid losing value where possible.
The idea that someone should be all fixed interest when they retire is absurd. It does not take into account, at all, how much income they need, nor their objectives. If they physically need 20k a year to live from a 200k portfolio, increasing with inflation every year, it gives them a lifespan of less than 10 years. Having said that, if someone has £1M and only needs 10k, he doesn't need anything other than the lowest risk investment - gilts. He doesn't need anyone to advise him on that or do it for him. Presuming he doesn't have any ambitions to pass on his assets and therefore make them grow.
2. I don't, personally agree with risk profiles a lot. For one they are subjective - what I consider low risk someone else might consider medium risk. Secondly, a non-sophisticated investor should be telling a manager what their objectives are and having them try and meet those objectives in the least risky way possible.
Most people do not understand market risk and risk profiles basically assume they do. If my objectives are to double my money every year but consider myself a medium risk investor, what is a suitable portfolio for that? By conventional definitions, there isn't one. They also rarely consider their long-term objectives and the best way to meet them.
EDIT: By the way, you can get research pieces from firms like Fidelity (and FWM) that show someone with £250k in 1970 taking income (think it was £30k) going up each year by inflation. One invests in bonds and one invests in a FTSE tracker. The bond portfolio was depleted after about 18 years whereas the FTSE tracker portfolio was worth considerably more, almost double I think.
After the first two years the tracker portfolio was worth less than half its original value, which is when most people would have thrown in the towel and gone to cash. And that is why most people never make any decent money in equities.
How many of your clients have held only those funds that have outperformed the market for the last 10 years?What's the 10-year return on a good global tracker? How would it compare to similar sector funds from Invesco Perpetual, Fidelity, M&G, GAM and Schroders over the same period in terms of absolute returns? These are the ones to beat, as they're likely to be fund managers recommended by almost all IFAs while constructing a balanced portfolio.
FWM has over 50 research analysts (all CFA qualified) that work standard working weeks for every client's portfolio (because they're all very similar).Actually, never mind, I found it. You charge 1-1.5% annually for managing this portfolio for a client. No wonder you don't like fixed fee-based companies, they'll do the same work as you for a fraction of the cost for the larger clients. Take a client with £1m spread across pensions and investments. With FWM, that's going to be a charge of £10k a year with no guarantee whatsoever of the amount of work that will actually be done by the company. A fee-based IFA with a reasonable amount of experience could potentially do well over 40 hours of dedicated work on that same client's portfolio, and could include their estate planning, their insurance needs, etc without requiring a new adviser solely for those subjects.
This is also assuming that the IFA does all the work himself. If he instead passes the admin tasks to an administrator and some of the more basic parts of the financial planning process to a paraplanner, that 40 hour fee could end up being a 3-figure amount without trouble.
Once you start increasing the portfolio beyond this size, it becomes even mor economical to use a fixed-fee model, as £3m translates to £30k with no additional work needed before the fee is taken. Clients out there going into the 8-figure personal net worth level would be paying over £100k a year for the percentage based service, but would they realistically be getting 10 times the work done for them? I believe this starts to highlight the issues with the percentage model.
So thats 50 x 5 (days) x 8 (hours) x 48 (weeks) = 96,000 hours per year.
That's obviously not including the dedicated client service representative they get (also CFA qualified) at the end of a phone whenever they need them and meet with them once a quarter. Or including the time of the in-house financial planner/pension specialist they get as and when they want it for no extra cost. Or the admin team. Or the portfolio evaluation group. Or the expertise of an industry guru who invented the price/sales ratio and is a self-made billionaire through his own investments.
I think that's better value, thanks.
Plus, you have missed the entire point that even if the person with a £3M portfolio is getting advice through a fee-based IFA, he is still investing in FUNDS and STILL paying 1.5% at least anyway!0 -
The fact that there is a commission involved is a conflict of interest in itself. Some financial advisors will be more tempted than others but it is likely to influence some, if not all, regardless. Bear in mind that most portfolio managers, not just IFAs, use 3rd party products and as such, will be open to the search when you look at how many complaints involve such providers when you look at the Portfolio Management department in the FOS, not the FOS as a whole.
Please stop referring to me as you (i.e. FWM). I don't work there anymore.
Yes, clients have held cash/fixed interest for over a year before with the intention to reinvest in equities. And they have achieved higher returns than cash over the period so it was worthwhile.
This just made me laugh. You unknowingly stumbled into my pet hate of why I hate most funds/IFAs.
1. How is a retail fund bespoke to a client? Its not.
2. If I get a Japanese Industrials fund and Japanese industrials are heading nowhere but down, will the fund manager either call me to tell me to sell out of my fund or invest his fund in 100% cash and fixed interest? No. Neither. The IFA won't tell me japanese industrials aren't the place to be because he's not an investment expert so the decision rests with me. I'm not an investment expert because I'm using an IFA... As far as I am concerned, the only funds worth looking at are global funds with enough flexibility to be 100% invested or cash as they see fit. And I'll buy that direct, thanks.
You need to go and read Determinants of Portfolio Performance by Brinson, Hood and Beebower. You'll probably dismiss it since it goes against everything you have 'learned'. However, it is a massive study lasting several years based on empirical evidence. Its conclusion is that portfolio performance is based primarily (70%+, some say as high as 90%) on asset allocation. Now I don't mean something like 60% equity, 25% bonds, 10% cash, 5% alternative. Static, balanced portfolios are destined to underperform in the very long term. I mean be in equities when equities are doing well and in cash or bonds when they're not.
20% or less is based on the style (i.e. geographic, sector, big cap/small cap, growth/value etc.). So having a specialist, frankly, is NOT worth the extra layer of fees. 10% or less is on security selection.
All the usual tricks. WithProfits and Endowments, structured products, commercial property, funds, fund of funds, fund of hedge funds etc.
1. Have you ever even done any Monte Carlo analysis? Any at all? I know its based on historical data but most performance projectors are. Over longer time horizons (ten years or more), equities historically provide the greatest return, outperforming bonds in 98% of the 20-year rolling periods since 1926. Even at only ten years, equities beat bonds nearly 90% of the time.
The idea that someone should be all fixed interest when they retire is absurd. It does not take into account, at all, how much income they need. If they physically need 20k a year to live from a 200k portfolio, increasing with inflation every year, it gives them a lifespan of less than 10 years. Having said that, if someone has £1M and only needs 10k, he doesn't need anything other than the lowest risk investment - gilts. He doesn't need anyone to advise him on that or do it for him. Presuming he doesn't have any ambitions to pass on his assets and therefore make them grow.
2. I don't, personally agree with risk profiles a lot. For one they are subjective - what I consider low risk someone else might consider medium risk. Secondly, a non-sophisticated investor should be telling a manager what their objectives are and having them try and meet those objectives in the least risky way possible.
Most people do not understand market risk and risk profiles basically assume they do. If my objectives are to double my money every year but consider myself a medium risk investor, what is a suitable portfolio for that? By conventional definitions, there isn't one. They also rarely consider their long-term objectives and the best way to meet them.
How many of your clients have held only those funds that have outperformed the market for the last 10 years?
FWM has over 50 research analysts (all CFA qualified) that work standard working weeks for every client's portfolio (because they're all very similar).
So thats 50 x 5 (days) x 8 (hours) x 48 (weeks) = 96,000 hours per year. That's obviously not including the dedicated client service representative they get (also CFA qualified) at the end of a phone whenever they need them and meet with them once a quarter. Or including the time of the in-house financial planner/pension specialist they get as and when they want it for no extra cost. Or the admin team. Or the portfolio evaluation group. Or the expertise of an industry guru who invented the price/sales ratio and is a self-made billionaire through his own investments.
I think that's better value, thanks.
Plus, you have missed the entire point that even if the person with a £3M portfolio is getting advice through a fee-based IFA, he is still investing in FUNDS and STILL paying 1.5% at least anyway!
whether you agree with this and Aegis's posts I think they are probably amongst the best Ive seen on here.0 -
0.25% or so in institutional units seems more suitable at that size, unless there's a fund that is appropriate and not available that way.Plus, you have missed the entire point that even if the person with a £3M portfolio is getting advice through a fee-based IFA, he is still investing in FUNDS and STILL paying 1.5% at least anyway!0 -
Indeed. An IFA client paying the full AMC on a managed fund is pretty much unheard of.0.25% or so in institutional units seems more suitable at that size, unless there's a fund that is appropriate and not available that way.I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
xyy123 wrote:
The idea that someone should be all fixed interest when they retire is absurd.
Similarly, the idea that anyone should be invested 100% in equities (or: growth assets) approaching retirement is nonsense.
A client of ours received advice from our firm, and from another, two years prior to retirement (in 2007). He chose the latter and the adviser recommended a portfolio invested heavily in commercial property, property securities and other equities.
Our recommendation was a portfolio consisting of 25% growth assets and 75% fixed interest / cash.
Boring, eh?
But, unlike the other firm, we had actually paid attention to the client's stated aim of preserving the value of the 25% tax-free lump sum payable on retirement.
Can you guess what happened next?
For the avoidance of doubt: I work for an IFA.0 -
Someone got an unpleasant redress bill?0
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Myrmidon_J wrote: »Similarly, the idea that anyone should be invested 100% in equities (or: growth assets) approaching retirement is nonsense.
...and...The idea that someone should be all fixed interest when they retire is absurd. It does not take into account, at all, how much income they need, nor their objectives.EDIT: By the way, you can get research pieces from firms like Fidelity (and FWM) that show someone with £250k in 1970 taking income (think it was £30k) going up each year by inflation. One invests in bonds and one invests in a FTSE tracker. The bond portfolio was depleted after about 18 years whereas the FTSE tracker portfolio was worth considerably more, almost double I think.
I'm guessing he outperformed the market from October 07 until March 09 and underperformed since then and will carry on doing so going forward. But if he definitely has enough money to last him the rest of his life, going up with inflation every year, and has no ambitions to pass more onto anybody, then good luck to him. But then, if that was the case, why would 25% in equities be of any use to him?Myrmidon_J wrote: »Can you guess what happened next?0 -
xyy123 wrote:
I'm guessing he outperformed the market from October 07 until March 09 and underperformed since then and will carry on doing so going forward.
You misunderstand.
The client chose the advice of the other firm and was invested 100% in growth assets when "the s*** hit the fan". Consequently, his potential tax-free cash payout fell by almost 40%.
I'm unsure if redress has been sought or indeed paid.
The client believed he had a very positive attitude towards risk ("opportunity", etc.) and rejected our initial proposal of 100% in defensive assets - hence the 'token' 25%. My personal opinion is that he genuinely did not believe that the "downs" of stock market volatility would happen to him.
Our opinion was that although his risk tolerance might have been very high (it was later revised down), his risk capacity was very low - as he had earmarked a specific sum for a specific purpose.
I would certainly agree that 100% equity (growth assets, whatever) investment should never be discounted; but in this instance, it was clearly inappropriate.
I think the asset allocation of the portfolio should absolutely reflect income requirements, objectives, etc. - but also attitude towards risk.For the avoidance of doubt: I work for an IFA.0 -
My own portfolio is near 100% in equities at the moment (with a new investment in a property fund made fairly recently). My own risk profile is pretty much at the top end of the scale, and my investments aren't time-constrained. As a result I'm comfortable with the ups and downs I'm likely to see.Myrmidon_J wrote: »You misunderstand.
The client chose the advice of the other firm and was invested 100% in growth assets when "the s*** hit the fan". Consequently, his potential tax-free cash payout fell by almost 40%.
I'm unsure if redress has been sought or indeed paid.
The client believed he had a very positive attitude towards risk ("opportunity", etc.) and rejected our initial proposal of 100% in defensive assets - hence the 'token' 25%. My personal opinion is that he genuinely did not believe that the "downs" of stock market volatility would happen to him.
Our opinion was that although his risk tolerance might have been very high (it was later revised down), his risk capacity was very low - as he had earmarked a specific sum for a specific purpose.
I would certainly agree that 100% equity (growth assets, whatever) investment should never be discounted; but in this instance, it was clearly inappropriate.
I think the asset allocation of the portfolio should absolutely reflect income requirements, objectives, etc. - but also attitude towards risk.
However, I would be a complete idiot if I recommended that same strategy to someone a couple of years from retirement who was looking to preserve their existing pension pot as best they could. I hope that your ex-client DOES go after that company for unsuitable advice, because they've clearly failed in their duty to actually listen to what the client needs.I am a Chartered Financial Planner
Anything I say on the forum is for discussion purposes only and should not be construed as personal financial advice. It is vitally important to do your own research before acting on information gathered from any users on this forum.0 -
Aegis wrote:
... I would be a complete idiot if I recommended that same strategy to someone a couple of years from retirement who was looking to preserve their existing pension pot as best they could.
Yes, indeed.
I think one problem was that the client had conflicting objectives. He wanted in on the bull market in equities and property (didn't everyone?), but also wanted to preserve a defined tax-free cash payout.
I think it is foolish to assume that a one-size solution can fit everyone - whether 100% equities or fixed interest.For the avoidance of doubt: I work for an IFA.0
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