Cheapest Sipp: build yourself a low cost DIY pension article

dunstonh

Fidelity is a notable exception which charges 0 for all "extras" but does have a 0.35% rate. Still better than HL which has 0.45% and also charges too.

That is the more common model on the IFA side. Charges typically in the 0.25% to 0.35% range with very few addition service charges. There are some SIPPs on the IFA side that have pages of charges like the DIY ones. However, it does appear that the typical DIY offering is different to the typical IFA offering.

You would think, if anything, the DIY offering would have the simpler charging. or may be its because historically, there is less scrutiny on the DIY side with only the first reviews happening this year.

gadgetmind

dunstonh wrote: »

So, in this case, the product charge is 0.9% (fund and provider/platform). How do you know if that is 3x more than DIY?

Because I know what I pay for my DIY portfolio and even my Group Personal Pension is now sub 0.5%.

OK, you could argue that the IFA is choosing better funds than my global trackers, bond ETFs, ITs and REITs, but you'd have to demonstrate that they were sufficiently better that paying 1.9% pa was justified versus my < 0.5% pa.

With 5% annual returns being ambitious over the coming years/decades, is blowing nearly 40% of your return on fees alone a sensible approach to investing?

gadgetmind

dunstonh wrote: »

Charges typically in the 0.25% to 0.35% range with very few addition service charges.

Well, I haven't seen any sign of people being quoted fees anywhere close to that when using IFAs. I agree that you have vastly more experience of this than I do, but maybe others here can say what advice/platform/fund fees they have encountered?

All I see is a mismatch between what you tell me IFAs can do with what we see them doing in practice.

dunstonh

Because I know what I pay for my DIY portfolio and even my Group Personal Pension is now sub 0.5%.

Most personal pensions over 20k are around 0.4% now. Higher values can fall further.

OK, you could argue that the IFA is choosing better funds than my global trackers, bond ETFs, ITs and REITs, but you'd have to demonstrate that they were sufficiently better that paying 1.9% pa was justified versus my < 0.5% pa.

You are not comparing like for like though. You are researching your investments, doing the work and putting them in place and accepting the liability for it. If you get someone else to do it then they do all that. However the product/investment charge would be the same (or lower as it appears).

With 5% annual returns being ambitious over the coming years/decades, is blowing nearly 40% of your return on fees alone a sensible approach to investing?

Getting it wrong and making costly mistakes can be more damaging. It is up to individuals if they DIY or IFA.

All I see is a mismatch between what you tell me IFAs can do with what we see them doing in practice.

You dont see them doing anything as you dont have access to that information bar a handful of cases that appear on the board every now and then.

Your focus is primarily cost. That will not be everyone's focus.

gadgetmind

dunstonh wrote: »

Getting it wrong and making costly mistakes can be more damaging. It is up to individuals if they DIY or IFA.

Agreed, but it just seems odd that low ongoing fees and employing a professional seem to be mutually exclusive.

Your focus is primarily cost. That will not be everyone's focus.

My focus is on the end result. I therefore look at tax efficiency first, asset allocation next, and costs only once I'm happy with everything else. Getting the first two right is vital, but high fees (and yes, I personally regard 1.9% as *very* high!) will also cause very serious long term investment under-performance.

If I were to employ a professional, I'd hope that all three of these vital areas were optimised to a degree that I couldn't achieve myself.

Thrugelmir

dunstonh wrote: »

You are not comparing like for like though. You are researching your investments, doing the work and putting them in place and accepting the liability for it. If you get someone else to do it then they do all that. However the product/investment charge would be the same (or lower as it appears).

In the nicest possible way. What do IFA's actually know about investments. Following markets isn't their day job so to speak. Even a fund or indeed a fund manager can be only be judged on historic data. So recommendations aren't really "researched" in the depth of selecting individual shares.

Thrugelmir

gadgetmind wrote: »

With 5% annual returns being ambitious over the coming years/decades, is blowing nearly 40% of your return on fees alone a sensible approach to investing?

Which is going to make stock selection itself critical. Following the markets with tracker funds may provide extremely disappointing returns.

gadgetmind

Thrugelmir wrote: »

Which is going to make stock selection itself critical. Following the markets with tracker funds may provide extremely disappointing returns.

As will choosing the wrong active manager, which is rather easy given that the vast majority fail to beat tracker funds.

dunstonh

In the nicest possible way. What do IFA's actually know about investments.

A lot more than most consumers. Yes, IFAs do not get involved in the day to day running but the qualifications do go into quite in depth detail.

So recommendations aren't really "researched" in the depth of selecting individual shares.

They are researched. However, they are researched to a higher level today than they were in the past thanks to a tightening up on due diligence requirements.

An IFA is not an investment manager. They use their knowledge and the buying in of external data and research (typically) to ensure that the recommendations are suitable. Whether that be a lot cost multi-asset solution costing 0.3% a year or a bespoke portfolio costing 1.9% a year. Investment returns will be whatever they will be.

As will choosing the wrong active manager, which is rather easy given that the vast majority fail to beat tracker funds.

Trackers give mid table consistency. So, half the funds will be above and half below. if you eliminate the easy managed funds you are left with a smaller core of funds which can offer the potential to out perform. You may get it wrong, you may get it right but its not as simple as saying most dont outperform as you are not picking one from most but a shortlist you have narrowed down.

malc_b

BTW anyone for anyone thinking of moving to II they have a refer a friend promo running until end Oct. You each get £30. But don't get too excited as it isn't real money like a typical cash back off. It is £30 worth of trades in the next quarter. Not half as good as they make it sound really.