Friends Provident pension

Money_Saving_Dude

Hi,

I have a FP pension with all my funds invested 100% in the managed fund. I have been following the debate between managed and tracker, with views falling on either side. Trackers to my mind are safer bets, as you don't know how well the manager will perform until after the event. (And I have no ability to choose who will be a good manager, so trackers surely are the way to go.)

Yesterday I did some digging into the fund (which was recommended and set up by my IFA) and discovered the managed fund is a so-called fund of funds. The FP pension is sold as low cost because its management charges are reduced by 0.2% or whatever. But I'm concerned this is bs as I'm paying (at least) two layers of charges in the fund of funds, and there don't seem to be any tracker options available to choose from?

Have I been sold a pup? Good for my IFA, but not for me?

If I chose to move my funds to a SIPP and put them into something such as HSBC trackers is that a sensible thing to do?

Any help appreciated.

firsttimebuyers_2

Money_Saving_Dude wrote: »

If I chose to move my funds to a SIPP and put them into something such as HSBC trackers is that a sensible thing to do?
.

Probably not - a SIPP would be a very expensive way to invest in a tracker fund - probably even more expensive than your FP plan. If you really want a track fund - I'm sure FP will have one available.

Money_Saving_Dude

ok, thanks for this. My immediate concern (and it may be unfounded) is that I've been stitched up by my IFA. I'm trying to get some background as to what I have and what is best. I've come to the view that trackers are better than managed (coz I can't vet the manager) and that clearly if using a tracker fewer charges are better than more (coz there's no performance to pay for).

I want to put these questions to my IFA but before I do I'm trying to understand what the options are, what is the best way of putting the questions, and what sort of answers I could get.

I could be barking up the wrong tree here, but surely investing in a fund of funds is not a clever thing to do. As I said previously there will be layers of charges and maybe overlap in what the funds themselves invest in.

firsttimebuyers_2

I guess some questions to ask yourself first are:

Why are you in the fund you are in currently? Were you given advice on this or did you choose the fund yourself? If you were advised, what did the IFA tell you about the fund? Did he/she put anything in writing to you? Did you say to the IFA that you wanted a tracker fund? What fund did you think you were invested in? Do you know what the actual charges applying to your plan are - it may not be as bad as you think?

You need to get all your facts straight first.

As for Managed v Tracker - there is no right answer (unless we have hindsight, which unfortunately we don't!). You just need to understand the costs / philosophies / potential risks / potential gains and make an informed decision, and take responsibility for that decision.

dunstonh

Trackers to my mind are safer bets, as you don't know how well the manager will perform until after the event

Not safer. You know with trackers that you are going to get mid table performance on a consistent basis.

Have I been sold a pup? Good for my IFA, but not for me?

For an insurance company, FP have had a range of very good options over the years and their current offering is consistently at the cheapest end for insured funds.

They have some excellent funds for inexperienced investors, including their cautious/balanced fund of funds.

If I chose to move my funds to a SIPP and put them into something such as HSBC trackers is that a sensible thing to do?

You havent said what funds you are in so we cannot compare.

You also havent said if you what trackers and how you will be rebalancing them and adjusting them as per economic cycle (i.e. what strategy you will be using).

My immediate concern (and it may be unfounded) is that I've been stitched up by my IFA.

My immediate concern is that you don't know what you are doing and you are jumping the gun in making assumptions. However, the underlying assets still give you similar or even greater (or lower risk). e.g. if the fund you are in has a wider spread of assets which includes lower risk assets then it will typically underperform a higher risk one over the long term. However, it will be less volatile and less risky. That doesnt make it bad. You have to match the investments with the risk profile of the individual.

I could be barking up the wrong tree here, but surely investing in a fund of funds is not a clever thing to do.

They are a very good option for investors taking transactional advice who don't understand investments.

As I said previously there will be layers of charges and maybe overlap in what the funds themselves invest in.

You are talking about insured funds here. Not unit trusts. FP have a few fund of funds that have a 1% TER (before discounts which can make them cheaper). So, your assumptions are incorrect.

Loughton_Monkey

I have never heard of the concept of trackers being 'safer'. As you imply, there is a debate as to whether trackers or managed are 'better' but the debate is normally about performance (after charges) rather than 'safety'.

In any case, a tracker is usually tracking an index. And that means it is almost always 100% in equities. Your FP Managed fund - if it's as I believe it is - is spread across a load of managed equity funds, plus a few bond, fixed interest, and even property funds. So this is 'chalk and cheese' anyway. You need, first, to decide "where you want to be" first, and only then consider charges and tracking. Currently, it's very difficult to have a well diversified portfolio of trackers.

Any comment on whether or not you have been sold a 'pup' is difficult without knowing details. You should have been told exactly the charges and fees/commissions received by your IFA at the time of sale - along with details of where your contributions were invested. Maybe you didn't read them at the time. But it might be a good idea to read them now?

My perception is that FP are a decent provider. Many of their older pensions gave extravagant guaranteed annuity rates - meaning that transfers out are the most costly thing to do.

As to the final question about moving to a SIPP, I consider it a bit 'cart before the horse'.

If it were me, I would probably go through the following steps in order:

1. As a benchmark, fully analyse my current arrangement and understand fully the funds, the fund charges, and the IFA charges.

2. Decide the extent to which these funds and charges met my needs and whether I need to obtain the advice of an IFA and whether or not his charges are reasonable.

3. If 'ditching' the IFA, I would then sit down and decide where I wanted to be invested. Equities/bonds/fixed interest?.... UK/Europe/Asia/South America/Russia/Resources?...... Individual shares or funds/EFT's/IT's?... Managed or Tracker? If retaining the IFA, I would discuss these options through with him and 'negotiate'/understand his charges.

4. Select appropriate provider or platform. Unless requiring specific 'non fund' investments, I would tend to avoid the more costly/complicated SIPP route.

[As an aside, I would note my continued surprise and confusion that there seems to be an overwhelming 'leap' by the general public to 'get into a SIPP' and it's usually on the back of a single fund - the HSBC Tracker. I don't know who to 'blame' or 'credit' for this, but privately I think HL's marketing has to be applauded here. By offering HSBC FTSE at 0.25%, it seems tantamount to supermarkets pulling the trick of selling milk below cost [so you save 20 pence] with the benefit of you spending the other £99 on extremely profitabe groceries.....]

Money_Saving_Dude

dunstonh wrote: »

Not safer. You know with trackers that you are going to get mid table performance on a consistent basis.

Correct. But my point is mid-table performance is better than poor performance. I'm not able to identify the 'good managers/funds' so it is safer to go with a tracker. That is my point.

dunstonh wrote: »

You havent said what funds you are in so we cannot compare.

It is called FP Managed NGP (SEDOL/MEXID code B00H4G4/FPMNG).

dunstonh wrote: »

You also havent said if you what trackers and how you will be rebalancing them and adjusting them as per economic cycle (i.e. what strategy you will be using).

For trackers what I would like is to split them across these asset classes:

UK equity (FTSE 250)
US equity
Pacific (ex Japan)
Gilts (mainly UK)
Corporate bonds (mainly UK?)

My aim is to have them split equally (20% each), and rebalance probably every 12 months back to this value. I can't add funds to the pension as I have a company pension, so it would be selling the better performing assets to boost the less-well performing ones. I'm 52 now so I was looking at following this process for the next ten years or so before increasing the weighting of the gilts/bonds over the remaining few years of work.

dunstonh wrote: »

My immediate concern is that you don't know what you are doing and you are jumping the gun in making assumptions.

Spot on. Hence the questions here before I go forward at full speed and put my foot in it!

dunstonh wrote: »

However, the underlying assets still give you similar or even greater (or lower risk). e.g. if the fund you are in has a wider spread of assets which includes lower risk assets then it will typically underperform a higher risk one over the long term. However, it will be less volatile and less risky. That doesnt make it bad. You have to match the investments with the risk profile of the individual.

They are a very good option for investors taking transactional advice who don't understand investments.

'What sort of risk do you want?' 'Dunno, average?' That was the conversation which got me to the managed fund. Now I've been doing more reading I'm trying to understand what I was given means. I understand you have to look over several years, and have read somewhere that you only (based on the past of course) really get the risk of a loss down to less than 1% by having funds invested over 20 years or more. I understand that, so I am willing to let my funds be a little more volatile.

dunstonh wrote: »

You are talking about insured funds here. Not unit trusts. FP have a few fund of funds that have a 1% TER (before discounts which can make them cheaper). So, your assumptions are incorrect.

So these are different from the OEICs that you buy in an ISA?

dunstonh

It is called FP Managed NGP (SEDOL/MEXID code B00H4G4/FPMNG).

Ok, that indicates a balanced managed investment in the Friends NGP product range. That is a mono charged contract (AMC only) and mostly used under stakeholder pension (but was also used by group schemes and a few of their personal pensions). It is not their best fund of funds but the fact its NGP would indicate that the selection is limited and you wont likely have access to their best funds.

For trackers what I would like is to split them across these asset classes:

UK equity (FTSE 250)
US equity
Pacific (ex Japan)
Gilts (mainly UK)
Corporate bonds (mainly UK?)

My aim is to have them split equally (20% each), and rebalance probably every 12 months back to this value. I can't add funds to the pension as I have a company pension, so it would be selling the better performing assets to boost the less-well performing ones. I'm 52 now so I was looking at following this process for the next ten years or so before increasing the weighting of the gilts/bonds over the remaining few years of work.

Where is your property, European equity, Japanese, Emerging Markets and Specialist sectors? What type of corporate bonds?

Your even weightings into a select number of sectors is effectively turning you into a fund manager yourself. You are not weighting the allocations based on any risk profile or economic position. Your selection of FTSE250 indicates stock picking instead which is not consistent with being pro tracker.

So, in effect, you are trying to create your own managed fund which using your own argument against managed, would mean you could underperform.

'What sort of risk do you want?' 'Dunno, average?' That was the conversation which got me to the managed fund.

Your 20% into each would actually result in lower risk than your current fund.

So these are different from the OEICs that you buy in an ISA?

Yes. The FP contract uses insured pension funds. The ISA does not. pension funds use the TER as the AMC.


The bottom line is that the contract you have and the fund you have is basic and simple. It is designed to prevent you from making mistakes. I wouldnt have my own money in there but I would happily recommend it to inexperienced investors who had that contract. You haven't been stitched up. An adviser sticking you in an FP NGP contract is not stitching you up or coming anywhere close to stitching you up. It's your ideal simple contract, simple funds, low value contract which is why it is also very popular with group schemes.

Money_Saving_Dude

Thanks guys.

As they say a little knowledge can be a dangerous thing. But on the other hand it has got me thinking about my investments and my pension, and that is no bad thing. The comment about HSBC trackers is interesting. Maybe I need to go round my thinking again.

So food for thought. I was not trying to rubbish my IFA, just looking for other opinions to help ascertain a balanced view.

As for 'safer' trackers what I mean is the risk of return is more known. You will get the market average, whether that is good or poor. It is 'safer' because you know you are getting the mid-point. Go for a managed fund and you have the 'extra' risk of not knowing if their costs are going to enhance or reduce that gain (or loss). And my point is simply take the manager out of the equation and we are left with market risk, rather than market + manager risk.

Still some good pointers and comments. Thanks again.