Independent Financial Advisers fees vs Novice Investor!

Ark_Welder

darkpool wrote: »

do you really want to invest in UTs that charge 3% a year?

Are you able to provide a link to an annual report that contains the numbers to back up your 3% figure? In the past you have only quoted magazine articles, which themselves haven't backed up their statements with examples.

You once tried to claim that a UT that had a high portfolio turnover had total charges in the 8% to 9% a year range. However, examination of the relevant fund's annual report showed that your guesswork was substantially incorrect.

darkpool

Ark_Welder wrote: »

Are you able to provide a link to an annual report that contains the numbers to back up your 3% figure? In the past you have only quoted magazine articles, which themselves haven't backed up their statements with examples.

You once tried to claim that a UT that had a high portfolio turnover had total charges in the 8% to 9% a year range. However, examination of the relevant fund's annual report showed that your guesswork was substantially incorrect.

LOL!! here you go AW. you study this to your hearts content.

The Financial Services Authority (FSA) carried out a study into this in 2005, and found that an annual turnover rate of 100% (all assets in the portfolio had been bought and sold in one year) would cost you an extra 1.8%. Add that to the average TER of 1.67% and you’re looking at annual costs of over 3%. Of course, the trades taken by the fund could boost your returns by even more and a good manager wouldn't spend money on the trades without thinking it would enhance performance.

Read more: http://www.which.co.uk/money/savings-and-investments/guides/different-types-of-investment/are-fund-charges-eating-into-your-returns/#ixzz1mSRuGdza
Consumer Champions Which?
Under Creative Commons License: Attribution Non-Commercial

Ark_Welder

darkpool wrote: »

LOL!! here you go AW. you study this to your hearts content.

The Financial Services Authority (FSA) carried out a study into this in 2005, and found that an annual turnover rate of 100% (all assets in the portfolio had been bought and sold in one year) would cost you an extra 1.8%. Add that to the average TER of 1.67% and you’re looking at annual costs of over 3%. Of course, the trades taken by the fund could boost your returns by even more and a good manager wouldn't spend money on the trades without thinking it would enhance performance.

Read more: http://www.which.co.uk/money/savings-and-investments/guides/different-types-of-investment/are-fund-charges-eating-into-your-returns/#ixzz1mSRuGdza
Consumer Champions Which?
Under Creative Commons License: Attribution Non-Commercial

Exactly. A magazine article that does not put any working to its statement.

http://forums.moneysavingexpert.com/showpost.php?p=48013957&postcount=22
http://forums.moneysavingexpert.com/showpost.php?p=48014989&postcount=29

darkpool

Average pension costs of 2.34% a year. I think it fair to say annual pension costs will be a fair bit lower than a UT.

Pension fund managers are creating £3.1bn in undisclosed extra costs to consumers by excessively trading assets, new research has suggested.
SCM Private claimed it found pension funds hold assets for an average of nine months, with trading costs on average 0.7% of the fund per year, or £3.1bn across the industry.

The wealth manager said this level of trading and cost is unnecessary because similar returns can be obtained by investing in index funds, according to its research

SCM Private said the actual, but undisclosed, cost of investing in pension funds is on average 2.34% a year.
Its estimate combines an average annual management charge (AMC) of 1.34%, plus average administration fees of 0.3% and the hidden trading cost of 0.7%.
With the average 15 year return on unit trusts at just 4.2%, SCM said the constant trading is eroding much-needed investment growth.

darkpool

Ark_Welder wrote: »

Exactly. A magazine article that does not put any working to its statement.

Which is a consumer affair magazine, i think it a reasonable source.

However we can all agree that TERs are typically about 1.7% and they don't include audit fees and dealing costs. How much does an average UT churn its portfolio a year? I think it safe to say that the average UT will cost 3% a year through an IFA.

Linton

darkpool wrote: »

ehhmmm ok, i said history has shown the stockmarket has returned 5 - 7% a year. You do know there is a difference between the stockmarket and UTs?

joking apart though, i think you are better off in UTs. You aren't going to get rich investing in them, however you shouldn't lose the lot either.

For everyone else, just think about what I'm saying. If you accept that over the coming decades real returns on the stockmarket are 5 - 7 % a year do you really want to invest in UTs that charge 3% a year? It means half of your returns are lost in fees it will lower your real returns to 2 -4 %.

This really is a specious argument founded on dubious premises.

Firstly what do you mean by "the stock market"? FTSE100, FTSE Allshare? S&P500? or perhaps the Hang Seng?

Next: no, real returns wont be 5%-7% a year. One year they may well be -10%, another year +15%, who knows. A claimed average of 5-7% in the past 100 years, a century of wild fluctuations, 2 world wars, rises and falls of empires, many major technology revolutions etc etc tells us very little about the next 10 years.

Thirdly: The choice isnt between UTs that charge 3% and some other investment with no charges that achieves the same objectives. For many objectives the only choice is which UT, there either isnt anything else or the alternatives perform badly.

Finally: We can put your arguments to the test, at least for the past 5 years where detailed performance tables are available. Do trackers show an annual 3% over-performance compared with the average UT in those few sectors where a direct comparison can be made? What do you think?

Ark_Welder

A £1000 contribution to an actively managed fund could, in theory, be invested by the fund manager into a single company in a single transaction. The same investment into a fully-replicated All-Share tracker would be spread across almost 900 companies, causing 900 transactions.

Because TERs do not include transaction charges for managed funds, they won't for a tracker fund either.

jem16

darkpool wrote: »

You do know there is a difference between the stockmarket and UTs?

Yes I do. However I'm not so sure you understand what "the stockmarket" is. Last I looked there were several.

darkpool

A study updated last year of thousands of U.S.-stock funds put the average trading costs at 1.44% of total assets, with an average of 0.14% in the bottom quintile and 2.96% in the top. Expenses are one of the most important things investors can look at, says study co-author Richard Evans, an assistant professor of finance at the University of Virginia’s Darden School. “We find that our estimates of trading costs” are an important predictor of performance.

Ok, the above is a US study. but i'd guess trading costs in the UK are similar if not highr due to our stamp duty. 2.96% trading costs for funds in the top quintille. on top of the TER. I'm soooooooo glad i have no UTs.

darkpool

Linton wrote: »

This really is a specious argument founded on dubious premises.

Firstly what do you mean by "the stock market"? FTSE100, FTSE Allshare? S&P500? or perhaps the Hang Seng?

Next: no, real returns wont be 5%-7% a year. One year they may well be -10%, another year +15%, who knows. A claimed average of 5-7% in the past 100 years, a century of wild fluctuations, 2 world wars, rises and falls of empires, many major technology revolutions etc etc tells us very little about the next 10 years.

Thirdly: The choice isnt between UTs that charge 3% and some other investment with no charges that achieves the same objectives. For many objectives the only choice is which UT, there either isnt anything else or the alternatives perform badly.

Finally: We can put your arguments to the test, at least for the past 5 years where detailed performance tables are available. Do trackers show a 3% over-performance compared with the average UT in those few sectors where a direct comparison can be made? What do you think?

i'll agree the definition of stockmarket is open to intrepretation. the indices you mention did not exist 100 years ago.

sigh, i meant 5-7 % returns on average. i don't think anyone here thinks the market returns 5 - 7% a year like a bank account.

unless anyone here has a crystal ball i think looking at historical data is one of the ways to guess future market performance.

I think you should stick to UTs, just like Jem16.