Where do I put it ?

cashsurf

Hi I was looking for some advice,I have just decided to start investing my money and have been to see a financial adviser,he was helpful in that he told me that it would be a good idea to invest in an investment ISA as I am prepared to take a medium to high risk plan.However the fund he chose for me had quite a high initial charge and obviously a management percentage I understand that is how he makes his money,however I found fidelity investments had a no initial charge deal going so I put the £7200 into a multimanaged fund however it has a 1.97% annual charge,now after doing a bit of research it seems like index trackers are a cheaper idea than the multi manager ISA that I'm now in,I am reluctant to listen to a financial adviser as I think they will suggest the best deal for themselves rather than their client.I am hoping to save about £20000 a year can anybody offer any suggestions I would be very grateful for some expert opinion,thanks:A

dunstonh

after doing a bit of research it seems like index trackers are a cheaper idea than the multi manager ISA that I'm now in

That is correct. However, the two things are very different.

I am reluctant to listen to a financial adviser as I think they will suggest the best deal for themselves rather than their client.

You didnt use a financial adviser in the end so what does it matter? If you are that paranoid about the advice given then work on fee basis.

I am hoping to save about £20000 a year can anybody offer any suggestions I would be very grateful for some expert opinion

Trackers and managed funds and fund of funds/multimanager funds all have different pros and cons. Often it depends on what your objectives are with the investments, where and how you want to invest and how active you will be with monitoring, switching and rebalancing.

Also, you shouldnt focus on cost as a priority. That is a secondary issue to where you want to invest. Focusing on costs as the primary thing means you could end up looking at choosing say one investment that made 7% after a 0.25% charge but ignoring an investment that made 10% after a 1.5% charge. In some areas you can get trackers and it can make sense to use them. In others you cant and need a managed fund and it makes sense to use them.

In your own research, you chose to disregard the adviser and go with a multi-manger fund. What attracted you to that and what type of MM fund was it? MM funds are ideal for the lazy investor and wont monitor, switch and rebalance. So, does that fit you? Apart from charges, what attracts you to trackers and how will they fit you?

John_the_Boy

Also don't forget to try the brokers that offer a refurnd of some of the fees. Even if companies don't charge initial fees you can get some money back usuing these brokers. Not sure how it works really, something about the fund companies setting aside a % of yearly fees to cover the cost of initial commission. So the brokers get some and also give you some and it doesn't cost you anymore :j

I also found the Telegraph good for finding no initial charge funds.....

investdirect.telegraph.co.uk/fund_research_tool/index.php

cashsurf

Thanks for replying,as to your questions dunstohn,I was attracted to the MM because that was what the financial adviser had pointed out and that as you say I probably fall into the lazy investor catagory,however I've been reading in various articles and forums that MMs and ITs are very similar in that they both follow the same markets only one is computer based and one is physically managed hence the difference in charges,I also know you get what you pay for sometimes,however I've also read that ITs have performed consistently better than MMs over the last ten years,is this so?

dunstonh

however I've been reading in various articles and forums that MMs and ITs are very similar in that they both follow the same markets only one is computer based and one is physically managed hence the difference in charges

Change your websites as there is no truth in that. Well, there is some truth but its misrepresented. If you have managed funds and trackers with the same objectives then the trackers will nearly always beat the managed funds. Problem is that most managed funds do not have the same objectives. e..g compare the L&G FTSE index tracker to M&G recovery. Both UK equity. Both in the same sector but both invested differently.

MM funds have an objective and may contain investments for all over the world and even non equity based (corp bonds and property for example). I assume you mean trackers and not Investment Trusts (ITs) follow a specified index and will only invest in that index to the same ratios.

I've also read that ITs have performed consistently better than MMs over the last ten years,is this so?

No truth in that either. A lot of the research is US based and their taxation and charges differ to ours.

Again, one reason is you are not comparing like for like. as mentioned above.

If you take a look in the UK All Companies Sector you will find the FTSE100, 250 and all share trackers in there along with the managed funds in the same sector. Whilst many of the managed funds will have different objectives, its the closest match to compare like for like. You will find the FTSE all share tracker is consistently around mid table for performance. Not consistent with the pro tracker articles.

You have to be wary with various websites as you tend to find they either take a pro managed or a pro tracker approach. A lot of the comments are not based on the UK but the US where trackers do make more sense. They dont take a balanced view.

When building a portfolio, you look at where you want to invest first. If a tracker exists that can meet your objective in that area then its worth having. If there isnt a tracker then you shouldnt ignore the managed funds as that means you are compromising your investments.

cashsurf

Once again thanks for your reply and time,I see the sense in what your saying,but to be truthful I dont know enough about investing to know what kind of portfolio I'm looking for I'm just looking to save about £20k a year with the best return on a medium risk ISA and the other £13k elsewhere without having to do too much myself,I can't ever see me buying the financial times,at the moment I'm paying 1.97% annual charge with Fidelity multimanager where as their Index tracker is 0.27%,I havent even been able to locate a comparison site that suits some body whose investing the full amount of £7200 a year on an ISA,

opinions4u

westoemarket wrote: »

Once again thanks for your reply and time,I see the sense in what your saying,but to be truthful I dont know enough about investing to know what kind of portfolio I'm looking for I'm just looking to save about £20k a year with the best return on a medium risk ISA and the other £13k elsewhere without having to do too much myself,I can't ever see me buying the financial times,at the moment I'm paying 1.97% annual charge with Fidelity multimanager where as their Index tracker is 0.27%,I havent even been able to locate a comparison site that suits some body whose investing the full amount of £7200 a year on an ISA,

All great reasons to see an IFA. Really.

Rollinghome

westoemarket wrote: »

I am reluctant to listen to a financial adviser as I think they will suggest the best deal for themselves rather than their client.

It depends on what basis they work. As the majority still work on a commission basis paid by the providers of the products they sell, as do the majority of people they employ, there will be a problem of "commission bias". The term adviser is used both for the tied advisers who work for banks and for IFAs who although most often still working on a commission basis at least have a wider range of products to sell.

Martin Lewis refers to the problem here:

The proof that commission impacts advice is that companies deliberately market increased commission rates to IFAs. If advice was never biased, then the rate of commission wouldn't make any difference, yet product providers know that up the commission rate and they're more frequently recommended.

And Moneyweek here: www.moneyweek.com/personal-finance/need-unbiased-advice-youll-be-lucky.aspx

One answer is to use one of an increasing number of IFAs that charge on a hourly basis but that can be expensive and may not be cost effective for smaller sums. The FSA are currently in discussions with the industry to reduce the problem with a view to ending the commission system as it currently operates for anyone calling himself an IFA and to demand higher educational standards to improve the quality of advice. That's scheduled to be completed by 2013 and is likely to cause quite a shakeout.

The term "managed" is used in two ways. One is to distinguish funds that are 'managed' funds from those that are 'passive' funds such as trackers. The other use discribes funds that fall into the IMA catagories Cautious Managed, Balanced Managed and Active Managed which includes many "fund of funds". Managed funds usually invest in a range of assets and regions rather than you having to make the allocation decisions

As you say tracker funds do outperform the majority of managed funds (as used in the first sense). According to the FT over 20 years only 20% of managed UT funds beat the index. The worst performing funds are closed and disappear from the stats entirely as happened to some New Star funds last year when New Star had to be taken over by Hendersons due to dismal performances. You are also right that IFAs working on commission are reluctant to sell tracker funds because they pay far less commission, or sometimes no commission. IFAs who work on an hourly basis don't have that problem and do heavily recommend them.

But that's not the end of the story. Unit trust tracker funds track whichever index you select and that might not be all that you need. If you can find one of the few managers that can beat the index then you will do better with them - although it's less easy that many relying on past history think and star managers often turn out to be duds when their luck runs out. One approach some use is to use trackers as core funds and add managed funds as needed. Others use ETFs which offer a wider range than UT trackers but must be bought through a stockbroker.

If you don't want to give it too much time the funds from the Cautious/Balanced/Active Managed sectors might suit you well. Check out funds such as those run by Martin Gray at Miton, Troy Trojan, and the Jupiter Merlin funds. The Jupiter funds are "funds of fund" with very high TERs but have done well in the past. The Miton and Trojan have much lower TERs. No one for sure can tell if they'll do as well in the future or whether the strategies they used will always work. It makes sense to spread your money around. Many here use www.h-l.co.uk to buy funds who refund the initial charge on most funds and sometimes a bit of the ongoing commission too. They make it very easy to switch funds with little or no cost with useful tools for comparisons.

You also mentioned ITs, Investment Trusts. ITs generally outperformed UTs in the same sector because of the closed end structure that's more efficient and allows lower management fees. They're allowed to be leveraged which can increase returns if used well. They also don't pay commission, aren't allowed to advertise (although they can advertise their savings schemes) and have to be bought through a stockbroker. A Global Growth IT could be a good alternative to a Managed fund and many have management costs similar to UT tracker funds.

dunstonh

at the moment I'm paying 1.97% annual charge with Fidelity multimanager where as their Index tracker is 0.27%

You know when you go into a sweet shop and you see all the tubs of sweets. They are all different and they dont cost the same. Do you go for the cheapest even if you dont like the flavour? If you like the flavour then its great but what would you do if you didnt?

Today, the FTSE100 was up 0.56%, FTSE 250 +0.19%, FTSE AS +0.51%, Dow Jones 0.51%, Sensex +0.75%, SSE Composite +2.59%.

Ignoring all other things, the best performer today would have been the most expensive of those to invest in. With your focus on charges, you would not have a penny in that area. Yet in half a day's trading the return was double the difference in the annual charge.

I havent even been able to locate a comparison site that suits some body whose investing the full amount of £7200 a year on an ISA

There are a few free research sites that are cut down versions of the ones that IFAs use and pay for. They are fine for basic research and enough for you if you know what you are doing. However, they won't compare say a UK FTSE tracker with a balanced managed fund of funds as they are two different things. They have different assets and different risk profiles and just cannot be compared like for like.

As an IFA I get my funds commission free (trail rebated) yet currently I only have one tracker in my portfolio. So, what if trackers are cheaper. I dont want to compromise my investments. Some people will only invest in trackers and will compromise. The balanced view is to use trackers when trackers are best and managed funds where managed funds are best. Look for potential and where you want to invest first, then look at charges. If you cant or wont DIY then it will cost more because you are paying someone else to do it. Whether that is an IFA or a fund manager or a multi-manager or a fund of funds. Paying more doesn't make it worse because you can stand to loose a lot more by having lazy investing with no rebalancing.

Like any area, if you DIY and get it right you can save a lot of money. If you DIY and make a pigs ear or it then it will end up costing more.