Is it just me, or do you feel aggrieved too?

gadgetmind

Linton wrote: »

(1)
1) Geographic: which areas of the world will be relatively richer in 10 years time? If you believe the answer is the UK, fine go for a UK index tracker.

There are great trackers for US, Europe, and Asia/Pacific and less good ones for Emerging Markets.

2) Raw materials: will these be more of an issue in 10 years time than now? If you believe not, ignore them.

I have commodities exposure elsewhere but TBH don't really think it adds much of value.

3) Sector/Industry: which industries or economic activities will be more important in 10 years time? How about technology for a starter? Perhaps banking will have been sorted out by then.

Again, I hold a lot of shares in technology companies (well over six figures at current prices) and have exposure to banks both via FTSE trackers and bank preference shares. However, these are my own personal conviction plays and I really wouldn't claim that such things are for everyone.

4) New currently small businesses: The small business managed funds have done well over the past 10 years, I am betting that will continue. Or do you believe the FTSE100 type global giants will overall outperform?

Well, they do say that elephants don't gallop, so I'm 1) biasing slightly towards small caps in my trackers, 2) getting other exposure via RIT IT (lots of private equity) and (gasp!) also the Liontrust Unit Trust. I bought the latter because the manager's investment philosophy chimed with my own, but then he changed his tune!

Investing is as much a matter of what you dont invest in as what you do. With your broad index approach you are making the decision to go for the large flabby dogs simply because they are currently large. Is this sensible?

At what market cap do you start regarding a company as non-flabby? And do remember that the mega-caps have *very* good EM exposure as shown by their growth figures.

There are two sorts of risk, short term volatility and long term chance of loss of capital.

Agreed, and I have tables generated by monte-carlo simulations using historical market data that show the probabilities of various gains/losses over various timescales.

It is here I suggest where an IFA can more than justify their fees in helping those people with a reasonable pot of money and without the experience or knowledge to match the investments to the needs. "stock picking" isnt what is required, its getting the strategy right.

I guess it depends on the magnitude of those fees.

Meeper

gadgetmind wrote: »

There are a number of areas where I think it's fair to say we don't all see eye to eye (active versus passive, high fees and commissions versus low fees, middlemen versus investing directly) and I'm sure the lively debate will rage on endlessly, but I like to think we all remain civil even if not always polite.

I don't mind the debate gadget, but you skew the information to the point of being grossly exaggerated.

Active versus Passive is a good debate to have. I probably lean more towards passive at the moment, but that's another debate for another time.

High fees and commissions versus low fees. Now, you are going off-course here. High fees versus low fees are one thing, but to put "commissions" in there only serves to incite an argument, and there's no need to cheapen the debate in such a way.

Middlemen versus investing directly. You neglect to put "qualified, professional middlemen, with a multitude of qualifications and years of experience in the sector". You lump all advisers into a "bad apple" bucket, then wonder why we get so defensive. Try to be more objective in your posts, rather than accusatory and broad-brushing the entire "adviser" community.

Civility is in the eye of the beholder. Whilst the form of your sentences may be "polite", there's nothing civil about making out that I and my brethren are all rogues who are out to con unsuspecting Joe Public out of his hard-earned. Hiding your spiteful message behind eloquence doesn't make it any less spiteful.

gadgetmind

Meeper wrote: »

Try to be more objective in your posts, rather than accusatory and broad-brushing the entire "adviser" community.

OK, I apologise and do accept that some of my statements have been rather too sweeping.

I try to disagree without being disagreeable, but have clearly failed on more than one occasion.

Meeper

Let's think about the "commission" point for a second, because this is something that bothers me.

Here's a situation:

Client has £100,000 to invest. Having carried out the fact-finding and so on, I determine that I can do all of the work that he wants me to do and come up with the appropriate recommendations. For this, I would charge a fee of.....say £1500. That's a fee, the guy would give me a cheque for £1500. He only has £100k though, so he takes it out of his lump sum and gives me a cheque for £98,500 for his investment.

Alternatively, the £100k investment goes to the company, who then pay me 1.5% commission for placing the business with them. Net effect is that the client only has £98,500 invested. This is a commission.

The commission is in now way at all different to the fee. Why do you revile commission-based work, when it is clearly preferable for some people who cannot afford to write cheques for the advice they are given and work which is undertaken?

gadgetmind

Meeper wrote: »

The commission is in now way at all different to the fee.

However, that assumes there has been no "commission bias": perhaps if the IFA had considered investment vehicles which don't pay commission, and have lower fees as a result, then the ultimate investor outcome might have been better? I forget the exact phrase the FSA used in their RDR woffle, but I recall the same "polite insult" style that I have (rightly!) been accused of.

Why do you revile commission-based work

For exactly the same reasons that the FSA dislike commissions, plus because I personally hate "smoke and mirrors" and hidden charges. I am far more concerned about long-term performance rather than short-term money "saving".

Note that this means that I also officially dislike Hargreaves Lansdown, and am deeply distrustful of their recommendations and naff "Wealth 150". Ah, so "XYZ Absolute Return Strategic Opportunity" is the one to go for this week, is it? Or perhaps there is some shady back-hander involved and this isn't really the best place for my money?

However, I quite like their platform and customer service, so use it for various investments, but I carefully step around the "land mines".

dunstonh

Note that this means that I also officially dislike Hargreaves Lansdown, and am deeply distrustful of their recommendations and naff "Wealth 150".

So you should be. It is marketing list. Publishing that gives HL far too media coverage and earns them commission. For example, they used to have the Schroder mid 250 fund on the wealth list. On an unbiased research list, how can the Schroder 250 fund be placed on there when the HSBC 250 is not? Maybe its because they lose money every time someone has the HSBC 250 fund but make around 0.8% on the Schroder fund.

HL are a product provider but use their IFA status to make it appear they are more than they really are. They should be treated in the same way as Aviva would be if they marketed a list of funds you should have.

However, that assumes there has been no "commission bias": perhaps if the IFA had considered investment vehicles which don't pay commission, and have lower fees as a result, then the ultimate investor outcome might have been better? I forget the exact phrase the FSA used in their RDR woffle, but I recall the same "polite insult" style that I have (rightly!) been accused of.

I think you are a bit behind the times here (or perhaps the IFA was). Modern investing should separate the three entities involved.

1 - platform/provider
2 - investment
3 - adviser

Remuneration should be independent of each other. So, if you agree £500 set up and 0.5% p.a. for review, rebalancing and bed&ISA and bed&pension. then that is the IFA charge. The investment charge wont matter if its managed or tracker to the IFA remuneration as they are paid the same. The platform shouldnt matter either (if you go unbundled - as hopefully all will be within a few years) as they will have their charge.

The irony of that is that managed funds suddenly look a lot cheaper. You get managed funds at around 0.6-0.8% typical range instead of 1.5-1.75%. Tracker funds also look more expensive as they are no longer being cross subsidised by the managed funds.

Meeper

gadgetmind wrote: »

However, that assumes there has been no "commission bias": perhaps if the IFA had considered investment vehicles which don't pay commission, and have lower fees as a result, then the ultimate investor outcome might have been better? I forget the exact phrase the FSA used in their RDR woffle, but I recall the same "polite insult" style that I have (rightly!) been accused of.

It makes no difference, you're just muddying the water. If I do research, and find an appropriate provider, and that provider will either pay commission, or not, what is the difference betwene me taking commission of £1500 or getting £1500 from the client?

dunstonh

If I do research, and find an appropriate provider, and that provider will either pay commission, or not, what is the difference betwene me taking commission of £1500 or getting £1500 from the client?

With modern contracts, absolutely nothing.

Or you could stick them in a basic stakeholder pension, earn about £200 commission and the client could have lower quality investments and higher charges. All because they were not interested in what they were getting for their money. They just didnt want the IFA to earn from it.

gadgetmind

dunstonh wrote: »

Or you could stick them in a basic stakeholder pension, earn about £200 commission and the client could have lower quality investments and higher charges. All because they were not interested in what they were getting for their money. They just didnt want the IFA to earn from it.

If I wanted to go that route, I'd use Cavendish online, get nicely discounted annual fees, and only £45 up front. Oh wait, I just did, twice, once for wife and once for daughter.

gadgetmind

Meeper wrote: »

what is the difference betwene me taking commission of £1500 or getting £1500 from the client?

Trust. In the first case, I'd find it about as easy to trust you as I do to trust HL's Wealth 150 recommendations, whereas in the latter I might (on a good day) give you the benefit of the doubt.

Of course, not everyone is as cynical and wary as I am, but that's their problem.