Professional Finance people no better than amateurs

darkpool

brasso wrote: »

It's true that people can find all the info they need from other sources, but equally, I could probably find all the tools and equipment I need in Halfords to service my car -- and all the information required is on the Internet. But I don't do that because I'm just not the practical type and because I just can't be bothered to spend the time required to learn and practice. Would rather pay someone else to do it, though of course I would ask around for recommendations first for a good garage.

but what does the average motorist pay in car repairs each year? unless they have an old clapped out car or a BMW etc it's unlikely they will pay more than 500 a year in repairs. to buy the tools to fix a car like spanners/ manuals/ ramps etc will soon add up, so it's not really cost/ time effective to do your own repairs.

but what does the average investor pay? well someone with 100k in UTs/ pension etc will pay say 2%, or 2k a year. all he has to do the job himself is read a few books and have internet access. it makes soooooo much sense for a reasonable intelligent person to manage his own finances.

jem16

darkpool wrote: »

but the evidence you provide shows that there is a difference in annual costs of 1.61% between a tracker and a normal fund? Nearer to 2% than 1%...

The evidence provided and pointed out by HelpWhereICan also shows that the costs are not compared on a like to like basis.

Both active funds include the IFA fee of 0.5% and a platform fee of 0.25% which the tracker does not include as Fidelity have used one of their own funds.

To show a fair comparison we have to compare both on a like for like basis. That makes the difference 0.86%.

So how can any IFA justify recommending the highest charging funds?

Should be quite easy in the areas where an active fund offers better potential.

HelpWhereIcan

darkpool wrote: »

but the evidence you provide shows that there is a difference in annual costs of 1.61% between a tracker and a normal fund? Nearer to 2% than 1%...?

I refer the honourable gentleman to the answer given by jem16 a short while ago and my own that mentions how the costs shown also do not allow for tracking error - something eloquently discussed in the other articles I linked to.

Do keep up.

darkpool wrote: »

that article also says this about fund costs -

Research by funds data provider Morningstar has shown fund expense ratios as strong predictors of performance. In a study of US funds, it found that in every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile. A study by TCF Investments (Low cost funds outperform) has similarly highlighted fund fees as a predictor of future returns, while a recent survey for FTMoney found that 80 per cent of investors thought fund charges were opaque.

Shame for you I have already stated that part of the role of an IFA is to keep costs down so I would not disagree.

Now, someone with your obviously 'special' characteristics could be expected to be a little behind the curve but, it's just that, as you have been told many, many times before ...

darkpool wrote: »

So how can any IFA justify recommending the highest charging funds?

cost, like taxation is one factor that should be taken into account. There will be circumstances where the additional charges represent value - Bolton's Special Situations was not the cheapest around - there will be times when they do not.

That is why many favour a Core/Satellite approach (let me know if google breaks down and you need me to explain it to you) for which you need to look at the Fund's Investment Objective, holdings, asset allocation, sector allocation, geographic allocation, volatility etc etc.

After all, if there is value to be had for darkpool in an inefficient market, there is value to be had for some fund managers using the very same techniques set out in

darkpool wrote: »

i pointed out that writing a call is the last thing you would do if you thought the share was going to rise. if you want to know more about derivatives you should get the FT guide to Investment, they have a chapter on it.

A very good book that I do have. I'll read it again when you understand that Unit Trusts and OEICs include Tracker Funds too.

darkpool wrote: »

perhaps you should be thinking of reasons why it's worthwhile to pay an IFA 160 an hour instead of going through my posts?

Perhaps you should be thinking of ways to directly address the real points that have been made to you.

Little hint - google 'Polemic' and 'Ad hominem' before answering.

I'll even throw in some sperlling and grammatical mistoks for you to start on just in ase you carnt' - I won't make 'em too hurd.

dunstonh

perhaps you should be thinking of reasons why it's worthwhile to pay an IFA 160 an hour instead of going through my posts?

as much as you think otherwise, your knowledge is nowhere near high enough. The amount of mistakes you make, the incorrect information you give and your complete bias and closed minded views would mean anyone taking advice from you is more likely to end up worse off.

HelpWhereIcan

By the way, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=869748, one of the other links I posted that darkpool cannot be bothered to read - or debate on the real issues - states:

Our paper focuses the long-standing puzzle of actively managed mutual fund underperformance on the minority of truly underperforming funds. Most actively managed funds provide either positive or zero net-of-expense alphas, putting them at least on par with passive funds. Still, it is puzzling why investors seem to increasingly tolerate the existence of a large minority of funds that produce negative alphas, when an increasing array of passively managed funds have become available (such as ETFs).

Interesting.

it goes on to say

Perhaps a class of unsophisticated or inattentive investors remain shareholders in funds after they have clearly demonstrated (over time) their inferior returns. Or, as Elton, Gruber, and Blake (2007) discuss, maybe investors are forced to make constrained rational decisions—since these authors document that many 401(k) plans offer inefficient choices of mutual funds.

Now, correct me if I am wrong, but hasn't just about everyone said that part of an IFA's role is to help 'unsophisticated or inattentive investors' make their decisions?

Isn't part of an IFA's role to help the investor choose the correct funds, vehicle and provider, to help ensure their pension for example has access to an 'efficient choice of mutual funds'?

Now I would argue that an IFA who helps someone to invest at a reasonable level of cost using a combination of Passive and methodically chosen and monitored Active investments (that damned Core/Satellite thing again) which allow a suitable spread of assets and sectors etc is worth their money.

Add to that any taxation or administration savings and we're starting to understand why it could be a good idea for those 'unsophisticated' or 'inattentive' investors to look at using an IFA.

If, on the other hand, you are a multi millionaire, self invested finance guru of unstated (but oh so worthy) occupation who has the time and funds to consistently outperform the professionals in a cost and tax efficient manner you don't need an IFA.

In fact, you may find IFAs and Fund Houses willing to refer their clients to you for Investment Management depending on your costs, investment and risk management strategies, capital adequacy, regulatory status, alpha, sharpes etc. Could help to pay for the fuel for the yacht for a while!

GeorgeHowell

brasso wrote: »

I sort of agree with the general sentiment, but a couple of points --

It's true that people can find all the info they need from other sources, but equally, I could probably find all the tools and equipment I need in Halfords to service my car -- and all the information required is on the Internet. But I don't do that because I'm just not the practical type and because I just can't be bothered to spend the time required to learn and practice. Would rather pay someone else to do it, though of course I would ask around for recommendations first for a good garage.

Many people have a similar attitude towards investment strategies and pension planning. You explain it yourself: "Financial advisors survive largely because many people do not want to do that. They are either too frightened, too lazy, or too ignorant to carry out these tasks on their own behalf". Yes, that's correct. They want a service that they can't or won't do themselves. Seems fair to me that if there is a market for this service, then it's supplied by others.

Regarding newspaper stories and financial pages I disagree strongly. I have lost loads of money in the past by listening to hacks enthusing about the next big thing. You say "Newspapers generally publish unbiased advice because they have nothing to gain by doing otherwise."

Well, what they have to gain is advertising and (I suspect) the odd very good free lunch from fund managers. They also have readers to gain, because if they published only sensible middle of the road advice e.g. long term buy and hold, avoiding speculation etc, the financial pages would be very tedious!

The garage analogy is a good one in some ways because the variation of good and bad (with perhaps an emphasis on the latter) and dubious value for money is I believe common to both groups. However, as others have also intimated, for the reasonably intelligent person of relatively modest means successfully handling one's own finances requires a lot less knowledge, experience, and equipment than does servicing and repairing motor vehicles.

Yes it is fair that if there is a market and a demand then someone should be supplying the service. But in my view, considering the potential implications and the numerous horror stories of which we hear, FAs should be more regulated than they are and in particular should be required to be far more rigorously qualified than they have to be now.

In terms of newspapers etc I was somewhat simplistic. Of course as with anything people need to be circumspect should not rely on just one or a few sources. But gaining a fairly wide impression from a number of sources in the written and broadcast media, and from the internet (including forums like this) does usually provide a good basis. Of course one has to be a bit contrarian and avoid chasing every 'flavour of the month' but that's just common sense for most people surely ? One also has to follow very rigidly the principle that if something seems to good to be true then it is too good to be true. It's by no means insurmountable but many people are bored by it all and the CBA (can't be a***d) factor looms large.

Financial journos, like all journos, have to maintain credibility with their readership. It is difficult to believe that the media, influenced though it is by advertisers, is any less likely to be impartial than FAs who are influenced by commission and by the need to lure and keep punters into the sort of products which are not easy to just go and buy over the high street counter. And unlike FAs the media sources are generally free or low cost (please nobody say that a commission-only FA is effectively free to the client).

GeorgeHowell

dunstonh wrote: »

as much as you think otherwise, your knowledge is nowhere near high enough. The amount of mistakes you make, the incorrect information you give and your complete bias and closed minded views would mean anyone taking advice from you is more likely to end up worse off.

That may be, but he's not, as far as we know, charging anyone, directly or indirectly, for financial advice. Anyone knows they are listening to an amateur and can take it or leave it.

I also have a theory that the FAs who post on this forum trying to defend their profession are probably not the ones to worry about. The dodgy ones, who go through all the motions and on face value meet all the (inadequate) regulatory requirements but still manage to ease people into inappropriate channels and/or fail to properly monitor their clients' affairs ongoing, in order to maximise their own income for minimum effort, are hardly likely to mix it with the punters on internet forums.

jem16

GeorgeHowell wrote: »

Yes it is fair that if there is a market and a demand then someone should be supplying the service. But in my view, considering the potential implications and the numerous horror stories of which we hear, FAs should be more regulated than they are and in particular should be required to be far more rigorously qualified than they have to be now.

From 2013 under the RDR, IFAs will be required to hold qualifications at Diploma level. Any IFA intending to be in business from 2013 is likely to have those qualifications now.

Basically see an IFA and avoid all FAs.

In terms of newspapers etc I was somewhat simplistic. Of course as with anything people need to be circumspect should not rely on just one or a few sources. But gaining a fairly wide impression from a number of sources in the written and broadcast media, and from the internet (including forums like this) does usually provide a good basis. Of course one has to be a bit contrarian and avoid chasing every 'flavour of the month' but that's just common sense for most people surely ?

Not really or the Tech boom and bust wouldn't have happened.

jem16

GeorgeHowell wrote: »

That may be, but he's not, as far as we know, charging anyone, directly or indirectly, for financial advice.

Does that matter though if following that advice is very costly to yourself?

Anyone knows they are listening to an amateur and can take it or leave it.

Darkpool would like no IFAs to post on this site as he sees it as a consumer site. Without the balance being provided by both IFAs and other knowledgeable posters, some unwitting soul might just be tempted to follow his "advice".

darkpool

jem16 wrote: »

The evidence provided and pointed out by HelpWhereICan also shows that the costs are not compared on a like to like basis.

Both active funds include the IFA fee of 0.5% and a platform fee of 0.25% which the tracker does not include as Fidelity have used one of their own funds.

To show a fair comparison we have to compare both on a like for like basis. That makes the difference 0.86%.



Should be quite easy in the areas where an active fund offers better potential.

yeah, but i would imagine it's the more sophisticated investor that will buy the trackers. he's not going to go to an IFA and pay 3% initial fee then 0.5% a year... when the tracker costs are 0.4%....

"it found that in every asset class over every time period, the cheapest quintile produced higher total returns than the most expensive quintile"

how can you read a statement like that and still think the highest charging UTs are a wise investment? you are an IFA groupie!!!