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

saveonarola

If it's possible for an informed and dedicated person to pick outperforming funds, why do Funds of Funds not perform better? After all, a Fund of Funds is just an active portfolio picked by a professional. I can see that the fettered versions are constrained, but an unfettered Fund of Funds ought to blow everything else out of the water, given the potential to pick a group of funds that will outperform by many multiples of the extra 0.5%-1% you pay over and above the TER of the individual funds.

Ark_Welder

Total expense ratio includes audit fees: http://www.investmentfunds.org.uk/fund-sectors/ter

Fund transaction cost reporting has been determined elsewhere: http://forums.moneysavingexpert.com/showpost.php?p=48954609&postcount=120

Ark_Welder

saveonarola wrote: »

If it's possible for an informed and dedicated person to pick outperforming funds, why do Funds of Funds not perform better? After all, a Fund of Funds is just an active portfolio picked by a professional. I can see that the fettered versions are constrained, but an unfettered Fund of Funds ought to blow everything else out of the water, given the potential to pick a group of funds that will outperform by many multiples of the extra 0.5%-1% you pay over and above the TER of the individual funds.

Whilst I do generally avoid fund-of-funds because of the costs (private equity and portions of RCP being exceptions), the underlying funds that are held are usually institutional class (if available) and so would have a lower AMC than the retail-investor share classes.

gadgetmind

saveonarola wrote: »

an unfettered Fund of Funds ought to blow everything else out of the water

Yup, but to avoid the risk of picking a fund of funds that turns out to be a dog, you might like to pay an IFA to do it for you.

Here's a nice story for you to enjoy.

http://money.cnn.com/2006/03/05/news/newsmakers/buffett_fortune/index.htm

Jegersmart

I always have a problem and try to avoid interacting with any business area/model that displays a clear and inherent conflict of interest between vendor and customer. A financial advisor of any sort that is incentivised to a different degree on different products are a clear case of this. I would only deal with an IFA that was remunerated the same way no matter what I invested in. Does that model exist?

The other clear case of this sort of thing is the entire insurance industry. I also try to avoid that but in some cases it is of course required by law that I am insured so I have no choice. I do have a choice with FA's though....

imho, dyor.

J

Lokolo

Jegersmart wrote: »

I always have a problem and try to avoid interacting with any business area/model that displays a clear and inherent conflict of interest between vendor and customer. A financial advisor of any sort that is incentivised to a different degree on different products are a clear case of this. I would only deal with an IFA that was remunerated the same way no matter what I invested in. Does that model exist?

The other clear case of this sort of thing is the entire insurance industry. I also try to avoid that but in some cases it is of course required by law that I am insured so I have no choice. I do have a choice with FA's though....

imho, dyor.

J

If you pay by fee and any trail comission goes back to you, then there is no biast towards any sort of product... This is the aim of RDR.

But there will likely be different costs for different work amounts. Finding the best Cash ISA for a client vs. Creating a Portfolio of 20 funds will have different work amounts and cost differently. There's no way to get away from this.

Linton

saveonarola wrote: »

If it's possible for an informed and dedicated person to pick outperforming funds, why do Funds of Funds not perform better? After all, a Fund of Funds is just an active portfolio picked by a professional. I can see that the fettered versions are constrained, but an unfettered Fund of Funds ought to blow everything else out of the water, given the potential to pick a group of funds that will outperform by many multiples of the extra 0.5%-1% you pay over and above the TER of the individual funds.

I believe this is one example of the somewhat narrow approach taken in this disccussion. The point is that maximum potential return over the medium to long term is not the only criterion for chosing investments. For many people short to medium term volatility and risk to capital are equally or possibly greater concerns.

I suggest that Fund-of-Funds are aimed at that market and so are conservative investors and use their freedom to try to even out volatility as much as maximising potential return. In that environment fees are a larger factor than in the higher risk higher return sectors.

gadgetmind

Linton wrote: »

The point is that maximum potential return over the medium to long term is not the only criterion for chosing investments. For many people short to medium term volatility and risk to capital are equally or possibly greater concerns.

I use assets that reduce volatility to both reduce risk (duh!), to provide diversity, and (just a little) to help my nerves. I know I could over the *very* long-term get slightly more return (0.2% based on historical data) but it's not worth the risk.

In that environment fees are a larger factor than in the higher risk higher return sectors.

Fees are a large factor everywhere, it's just that they are easily to justify (and hide!) in areas with more noise.

Jegersmart

gadgetmind wrote: »

I use assets that reduce volatility to both reduce risk (duh!), to provide diversity, and (just a little) to help my nerves. I know I could over the *very* long-term get slightly more return (0.2% based on historical data) but it's not worth the risk.
.

really? and what lower risk instruments are these?

Rollinghome

Meeper wrote: »

Nope, these are included in the overall fund charges levied by the managers, inclusive of rebates obtained, and all included in my total spread of 1.8 - 2.2% per annum.

I've said it twice now, are you going to ask the same question again?

What complete nonsense. Of course the internal trading costs are additional costs to the fund and not included in the TER calculation.

It's shocking that there are characters out there, calling themselves 'Independent Financial Advisers', who are not only clueless about any investment that doesn't pay them commission but are almost as clueless about the products they do sell.

There needs to be a major shakeout of those now offering to give financial advice.