Independent Financial Advisers fees vs Novice Investor!

Ark_Welder

gadgetmind wrote: »

The chances of picking a fund that will consistently beat its benchmark over the medium/long term are very low. That doesn't mean zero, just low, too low to justify the potential upside IMO.

Apart from the managed funds with their higher TERs that you are invested in because they suit your requirements. How does your selection of these differ from anyone else's selection of theirs?

jem16

Janeybo wrote: »

Standard charge 4.25%,

Standard charge is initial commission. Out of this 4.25% comes the IFAs initial commission of 3%. This is a one-off commission for buying this fund.

AMC = 1.75%, TER = 1.89%.

The IFAs commission of 0.5% comes out of this every year for as long as you hold the fund/s.

And I now realise that adding new money to an ISA is another IFA fee of 3% as legally it's seen as a new investment. And that was one of the points about my original post - that I expected to pay the first 3% last year and renewal commission, but not another 3%, now I know.

The initial commission is paid when you buy new funds.

Generally the AMCs range from 1.75 to one at .5%

You may find the trail commission paid to the IFA is not the same for all of the funds, especially the 0.5% fund.

Yes I had been looking at DIY and seeing that there would not be a big saving doing it myself, plus it's obvious that I don't know what I'm doing!

If you go DIY you should save the initial fee and can have some or all of the 0.5% that the IFA would get rebated. However with changes due to RDR it's not entirely clear what will be happening in the future with bundled platforms that are traditionally used for DIY purchases.
Whether it's worth the saving is up to you.

That same RDR will also have an effect on the way an IFA will charge as commission is being banned.

gadgetmind

Ark_Welder wrote: »

Apart from the managed funds with their higher TERs that you are invested in because they suit your requirements. How does your selection of these differ from anyone else's selection of theirs?

I hold very few funds and expect this to fall close to zero in the new year. My selection of them was probably as half-arsed and doomed to underperform as anyone elses and most likely no better than a pin.

However, I've learned a lot over the last few years, and have read a lot of good books on the subject, hence my (overdue) change of tack.

I'm not sure what I'll be left with alongside my trackers. Probably a few conviction ITs that steadfastly refuse to correlate with anything else, maybe some infrastructure REITs, and I may (undecided!) retain M&G Global Basics and First State Global Listed Infrastructure just to show how open minded I am , but also for some indirect commodities and global infrastructure exposure.

My wife also has a fledgling high-income equity portfolio that's going to be slowly built up over the years to provide tax-efficient pipe-and-slippers retirement income.

Ark_Welder

gadgetmind wrote: »

Probably a few conviction ITs that steadfastly refuse to correlate with anything else,

My point, though, is that those investment trusts are actively managed funds. And dare I say: 'Past lack of correlation does not imply future lack of correlation'. And they do underperform indices and benchmarks at times, and they could do so permenantly into the future. But, you (and I, and others) select these particular funds based upon our specific requirements - and expectations of them. Others do the same with other funds.


Similarly with individual shares. How do you determine that the shares that you have selected will perform better than the ones that you have chosen to exclude? Historical data, such as P/E ratio and dividend yield? Why not use a tracker for this area? There are ones available that are based upon dividend yield.

gadgetmind

Ark_Welder wrote: »

My point, though, is that those investment trusts are actively managed funds.

No, they are publicly listed companies. but I will agree that they are managed collective investments. And yes, I do accept that holding these weakens my argument against UTs even though they are less than 5% of our total portfolio, but there you go.

'Past lack of correlation does not imply future lack of correlation'.

Given that the ITs I hold invest in a very wide range of asset classes, and often short markets and currencies, correlation is unlikely but not impossible. PNL is up 10% this tax year, which I'd say shows a distinct lack of correlation!

Similarly with individual shares. How do you determine that the shares that you have selected will perform better than the ones that you have chosen to exclude? Historical data, such as P/E ratio and dividend yield? Why not use a tracker for this area? There are ones available that are based upon dividend yield.

I also include dividend cover, price to book, gearing, dividend growth history, sector, global exposure, market cap, non/cyclical nature, and much more. I also restrict holding and sector sizes to reduce risk.

I have looked at the Vanguard UK Equity Income tracker, and it's not a bad option, but doesn't do quite enough filtering for my tastes. IUKD does zero filtering, and it hasn't had a great time.

Of course, you could ask why this filtering is a good thing for this income portfolio but doesn't apply to trackers. That's because high dividend yield can be a warning sign, and it's always risky buying on the basis of yield, so you need to understand the reasons for it rather than just buying blind.

I could go for a UK Income fund, but the list of candidate companies is actually quite short (perhaps 40 of which we hold 20), and I can avoid 1.5% to 2% TER by holding directly. It's also a bit of fun!

Others do the same with other funds.

As long as that's with carefully targeted parts of their portfolio (everything in a portfolio needs to be there for a reason), then I don't suppose the fees will be too much a drag on overall performance.

If it's with the whole lot, then I bet the fund managers get a yacht before the investor does!

Ark_Welder

gadgetmind wrote: »

No, they are publicly listed companies. but I will agree that they are managed collective investments.

i.e. They are closed-end funds, rather than open-ended. Apparently, they employ 'expert fund managers according to the AIC

http://www.theaic.co.uk/Documents/Factsheets/AICIntroductionFactsheet.pdf

gadgetmind wrote: »

Given that the ITs I hold invest in a very wide range of asset classes, and often short markets and currencies, correlation is unlikely but not impossible. PNL is up 10% this tax year, which I'd say shows a distinct lack of correlation!

If you are interested in low correlation - to the extent that beta is currently -0.1957 (i.e. negative, source FT), then take a look at BHMG. It is what 2+20 and yatchs (plural) on Lake Geneva can give...;)

For me, te interesting time with Troy is when the decision is made to reduce gold.

gadgetmind wrote: »

I could go for a UK Income fund, but the list of candidate companies is actually quite short (perhaps 40 of which we hold 20), and I can avoid 1.5% to 2% TER by holding directly. It's also a bit of fun!

TMPL in this area for me. TER around 0.53%.

gadgetmind wrote: »

(everything in a portfolio needs to be there for a reason)

Exactly. EMG is there to scratch the itch that teaches me not to do again (until the next time ).

gadgetmind

Ark_Welder wrote: »

Apparently, they employ 'expert fund managers according to the AIC

Well, that's OK then!

If you are interested in low correlation - to the extent that beta is currently -0.1957 (i.e. negative, source FT), then take a look at BHMG. It is what 2+20 and yatchs (plural) on Lake Geneva can give

I do hope you're not cherry picking.

For me, te interesting time with Troy is when the decision is made to reduce gold.

They have always said that gold is a mistress of the moment rather than a wife for life.

TMPL in this area for me. TER around 0.53%.

I have considered a basket of diverse income and growth ITs as their reserve would mean I wouldn't have to keep three years of income in ILSCs/cash. Temple Bar is on my list.

Exactly. EMG is there to scratch the itch that teaches me not to do again

I've never given any consideration into investing into that kind of company as they don't have any kind of "moat" around their operations, ditto banks. I am now putting a very small amount into insurers but they still strike me as being the kind of operations that could disappear in the blink of an eye and their competitors would effortlessly take their place.

Ark_Welder

gadgetmind wrote: »

I do hope you're not cherry picking.

If you want bottom picking then TEM (year-to-date). Unfortunately, I couldn't find a straight-faced smiley.

Or PSD outside the pension. No problems here with reporting the failures!

gadgetmind wrote: »

They have always said that gold is a mistress of the moment rather than a wife for life.

Which is why it will be interesting to see whether they lead or follow. Or drip, for that matter.

gadgetmind wrote: »

I have considered a basket of diverse income and growth ITs as their reserve would mean I wouldn't have to keep three years of income in ILSCs/cash. Temple Bar is on my list.

Not sure that I would replace or reduce cash for ITs. Cash still has a place as an asset in its own right. I am happy to run slightly lower cash with slightly higher allocation to investment-grade bonds, though. But I am looking to increase cash - largely by not reinvesting - because I've moved a bit further down the credit scale with the bonds. Plus, I'd like some readies waiting for next year, but without having to sell if I can. As with anything, time will tell whether it is the right thing to do.

Main problem with the Growth & Income sector over a few years has been the lack of discount. Although looking now on Trustnet there are a few more on one now. Interesting to see Lowland on a 7%-8% discount. More volatile than some. Could depend on whether good things or bad things are expected, economy-wise.

gadgetmind wrote: »

I've never given any consideration into investing into that kind of company

Ah! You mistake 'invest' for what really is a wild punt...:) It's my bit of (masochistic) fun!

gadgetmind

Ark_Welder wrote: »

If you want bottom picking then TEM (year-to-date). Unfortunately, I couldn't find a straight-faced smiley. Or PSD outside the pension. No problems here with reporting the failures!

TEM is attractive, whereas PSD is the kind of thing I would probably never touch. My best investments are those that I understand the most and being a "call a spade a spade" Northern lad I'm not into this whole structured/leveraged/absolute hoohaa. TBH, PNL scares me quite enough!

Which is why it will be interesting to see whether they lead or follow. Or drip, for that matter.

I suspect that the first thing we know if that they'll have already have done it.

Main problem with the Growth & Income sector over a few years has been the lack of discount. Although looking now on Trustnet there are a few more on one now. Interesting to see Lowland on a 7%-8% discount. More volatile than some. Could depend on whether good things or bad things are expected, economy-wise.

Lowland is also on the list. Said list would have had the button pushed, but I'm sure you can imagine how I feel about premiums!

Ah! You mistake 'invest' for what really is a wild punt...:) It's my bit of (masochistic) fun!

I bear a few scars in categories that include (but are not limited to) physical, mental, and financial. Rubbing said scars before hasty action helps to focus my maturing mind rather nicely.

However, my entire "life trajectory" to date has been rather unconventional, and the most successful aspects have been those things that most people either couldn't do or wouldn't do, so ... so why the hell am I now looking at trackers?

It's because I'm a scientist at heart, and a man of science needs a heart of stone: I can't deny the ample evidence that this is the way you need to deploy the bulk of your funds for best long-term returns.

If it seems like this is something I'm struggling with, and mentally rebelling against, then you're right, but you cannae fight the laws of physics.

Janeybo

jem16 wrote: »

Standard charge is initial commission. Out of this 4.25% comes the IFAs initial commission of 3%. This is a one-off commission for buying this fund.



The IFAs commission of 0.5% comes out of this every year for as long as you hold the fund/s.



The initial commission is paid when you buy new funds.



You may find the trail commission paid to the IFA is not the same for all of the funds, especially the 0.5% fund.



If you go DIY you should save the initial fee and can have some or all of the 0.5% that the IFA would get rebated. However with changes due to RDR it's not entirely clear what will be happening in the future with bundled platforms that are traditionally used for DIY purchases.
Whether it's worth the saving is up to you.

That same RDR will also have an effect on the way an IFA will charge as commission is being banned.

Thank you jem16, all very clear