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Anyone been to an IFA and not been advised to buy Unit Trusts?

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  • qpop
    qpop Posts: 555 Forumite
    edited 6 December 2011 at 10:47AM
    gadgetmind wrote: »
    On UK shares, yes stamp duty is unavoidable unless you use more complex instruments that equity holdings. The Vanguard UK tracker charges you this 0.5% explicitly rather than hiding it in tracking error, which is nice.

    I don't think funds are allowed in include SDRT in the TER so it's always going to be a hidden performance drag unless you pay it up front.

    BTW, this Guardian article quotes a figure of "as much as 3% a year".

    http://www.guardian.co.uk/money/2011/feb/05/fund-management-price-war

    The table there also shows how the average UK equity fund performed versus the index over the last five years. Of course, your IFA wouldn't pick an average fund! :D

    I'd hope you're well informed enough to realise that the Guardian would sell less papers if it was statistically accurate (i.e. providing mean/median cost of funds to investors rather than "up to")

    Up to is a phrase that should be banned from journalism, as it's entirely misleading.

    For example:

    The UK has a working population of over 34 million people.http://news.bbc.co.uk/1/hi/uk/3085647.stm

    The above article notes that the average commute is 45 minutes.

    Let's say a single person's commute took 4 hours

    The rag's headline could well be "IS ENGLAND REALLY WORKING???? COMMUTERS TAKE UP TO FOUR HOURS TO GET TO WORK!!!!!!"

    Is this representative? No
    Is it useful? No

    What is happening in this hypothetical scenario is that a statistical outlier is being used to prove a point, much like in the article you've posted, by an editorial team that is fairly notoriously anti-(insert money-related industry here).
    I am an IFA, but nothing I say on this forum constitutes financial advice. Always draw your own conclusions and always do your own research.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    Meeper wrote: »
    Nope, these are included in the overall fund charges levied by the managers

    My understanding, backed up by several sources, is that dealing costs, including SDRT, are not included in the TER figures.

    http://www.ft.com/cms/s/2/86142414-cb0e-11de-97e0-00144feabdc0.html

    I welcome correction if you're sure that the quoted TERs for OEIC/UTs do include dealing costs.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    qpop wrote: »
    I'd hope you're well informed enough to realise that the Guardian would sell less papers if it was statistically accurate (i.e. providing mean/median cost of funds to investors rather than "up to")

    You'll notice that I included some quotes marks. :D

    The problem we face is that UTs don't have to quote the real total costs so it has to be estimated from their TER and turnover. Most estimates for typical UTs seem to run at between 2.5% and 3%..

    Of course, your IFA might pick a fund for you that takes four hours to get to work. ;)
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • qpop
    qpop Posts: 555 Forumite
    gadgetmind wrote: »
    My understanding, backed up by several sources, is that dealing costs, including SDRT, are not included in the TER figures.

    http://www.ft.com/cms/s/2/86142414-cb0e-11de-97e0-00144feabdc0.html

    I welcome correction if you're sure that the quoted TERs for OEIC/UTs do include dealing costs.


    Another issue you are conveniently ignoring, is that bid-to-bid prices (as quoted on all total return charts) incorporate ALL costs (due to the nature of an OEIC/UT).
    I am an IFA, but nothing I say on this forum constitutes financial advice. Always draw your own conclusions and always do your own research.
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    qpop wrote: »
    Another issue you are conveniently ignoring, is that bid-to-bid prices (as quoted on all total return charts) incorporate ALL costs (due to the nature of an OEIC/UT).

    Yes, trading costs are (eventually) shown in total return but not (AFAIAA) in the quoted TER.

    Regards, "conveniently ignoring", I seek to understand and not to ignore. If there is chapter-and-verse on which of a funds costs are/aren't shown in the various quoted charges, and what typical (mode, media, mean, standard deviation, etc.) overall costs to the investor are, then I would welcome a link.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • qpop
    qpop Posts: 555 Forumite
    gadgetmind wrote: »
    Yes, trading costs are (eventually) shown in total return but not (AFAIAA) in the quoted TER.

    Regards, "conveniently ignoring", I seek to understand and not to ignore. If there is chapter-and-verse on which of a funds costs are/aren't shown in the various quoted charges, and what typical (mode, media, mean, standard deviation, etc.) overall costs to the investor are, then I would welcome a link.

    Unfortunately (as far as I know) there isn't easily accesible academic research into this, and any research that you can unearth is littered with (amongst other things) confirmation bias, vested interests (i.e. Vanguard's research on tracker funds), misinformation and misuse of statistics (any article on OEIC charging, positive or negative).

    Total return charts are the best indication, which is why I have stated for some time, anybody who feels they've "beaten" the OEIC universe needs to provide enough information (risk/return ratios, total return tables, total dealing costs paid etc) to be able to "put their money where their mouth is."

    Unfortunately, I doubt that is likely to happen any time soon.

    Also, here is the FSA "TER Definition" guide

    https://fsahandbook.info/FSA/print/handbook/COLL/4/Annex1
    (c)The total operating costs do not include:
    -transaction costs which are costs incurred by a simplified prospectus scheme in connection with transactions on its portfolio. They include brokerage fees, taxes and linked charges and the market impact of the transaction taking into account the remuneration of the broker and the liquidity of the concerned assets;
    -interest on borrowing;
    -payments incurred because of financial derivative instruments;
    -entry/exit commissions or any other fees paid directly by the investor;
    -soft commissions in accordance with paragraph 4.
    I am an IFA, but nothing I say on this forum constitutes financial advice. Always draw your own conclusions and always do your own research.
  • qpop wrote: »
    I'd hope you're well informed enough to realise that the Guardian would sell less papers if it was statistically accurate (i.e. providing mean/median cost of funds to investors rather than "up to")

    Up to is a phrase that should be banned from journalism, as it's entirely misleading.

    You're quite right about 'up to' being misleading, but what the Guardian article actually says is that investors are 'sometimes paying as much as 3%', which is not the same at all. FWIW, the article seems pretty fair to me.
    gadgetmind wrote: »
    My understanding, backed up by several sources, is that dealing costs, including SDRT, are not included in the TER figures.

    http://www.ft.com/cms/s/2/86142414-cb0e-11de-97e0-00144feabdc0.html

    My understanding too. Here's another source:

    http://www.telegraph.co.uk/finance/personalfinance/investing/7923367/More-than-meets-the-eye-to-fund-charges.html
    So does the TER include all the costs that I pay?

    I'm afraid not. The TER does not include the trading costs – the costs for buying and selling shares within the fund. The more active a manager is in trading the underlying portfolio, the higher these costs. [...]

    Can I compare the true costs of investing in different funds?

    No. Trading costs range from about 0.09 per cent a year to one per cent. "The AMC is a quite useless figure; the TER is misleading because it is not total – it does not include dealing charges or, if it's a fund of funds, the charges on the underlying funds," says Mr Waller.
  • One other article that mentions the extra costs not included in the TER is
    http://monevator.com/2010/11/09/what-is-ter/
  • Lokolo
    Lokolo Posts: 20,861 Forumite
    Part of the Furniture 10,000 Posts
    Although the TER doesn't include a lot of things, if we want to have an argument about managed vs. trackers, all the costs which aren't included in managed funds, also aren't included in trackers.

    Surpsingly, trackers do trade so have these costs as well!
  • gadgetmind
    gadgetmind Posts: 11,130 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    qpop wrote: »
    anybody who feels they've "beaten" the OEIC universe needs to provide enough information (risk/return ratios, total return tables, total dealing costs paid etc) to be able to "put their money where their mouth is."

    Trackers don't feel, they just track, and sector averages of OEIC performances are similarly dispassionate.

    Of course, everyone thinks they are above average, and that they'll be able to pick the fund that won't promptly return to mean. Some people do but most don't.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
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