Professional Finance people no better than amateurs

dunstonh

So if someone walked into your office and said "there has been ample research that says stockmarkets deliver circa 5% growth in real terms a year, the investments you propose I make have annual fees of 2.5%. Does it really make sense for me to give away half of my investment growth each year?"

There you go, I think that's a challenging question you will enjoy answering.

The only investment I have used that has a charge anywhere near that is Jupiter Merlin's range of funds. This has beaten HSBC FTSE 100 tracker over 5 years (7.87% for tracker, 22.02% for Jup) and 10 years (53.3% for tracker and 97.23% for Jup). So, the answer is a resounding yes. However, I dont use that fund much as I prefer cheaper alternatives. I will use it for the right person though.

atush

Personally I think there is a yawning gap in the market which IFAs should seriously look at entering, and that's general education in finances. How many kids grow up with no understanding of interest rates or mortgages or even basic budgeting? Why is this acceptable, especially as we head into a period of poor growth and lack of opportunity? Imagine how much respect the industry would earn if it took it upon itself to educate the next generation to better prepare themselves for this environment.

This is something I have been doing with my kids from around age 8. Although I think it could weel be covered in school lessons from math to geography etc w/in a curriculum. As finance, tax and budgeting has a big scope across subjects and affects us all from employment to social services to basically everything. Although their horror at the idea of paying tax was quite something to see (and reminds me of many here lol).

A fair question for those amateurs who give financial advice to others. But most amateurs only advise themselves not others.

I do actually do this with one person, although technically I shouldn't as I am not qualified but I do her books and her tax returns for her. but my efforts will hopefully keep her off benefits and make her retirement more comfortable. As otherwise she wouldn't have any equity investments, a pension, and all her cash would be earning 0.1% at best. But it is like pulling teeth at times ;-)

HelpWhereIcan

darkpool wrote: »

So if someone walked into your office and said "there has been ample research that says stockmarkets deliver circa 5% growth in real terms a year, the investments you propose I make have annual fees of 2.5%. Does it really make sense for me to give away half of my investment growth each year?"

There you go, I think that's a challenging question you will enjoy answering.

I would point you towards https://www.barclaysstockbrokers.co.uk/Market-Insight/Analysis/Barclays-Wealth-Insights/Lists/Special%20Reports/Attachments/160/EQUITY_GILT_STUDY_2012.pdf - especially chapter 5 which provides more detail.

The 5% return is real - above inflation - rather than nominal

The 2.5% you quote would come from the nominal return not the real - so potentially 2.5% from, say, 8% rather than from 5% as you state.

and http://www.investorschronicle.co.uk/2012/02/07/funds-and-etfs/isa-funds/the-true-cost-of-investing-in-funds-oUc8VLh2BcMBacjws7u9UM/article.html

which shows that the 2.5% figure you quote somewhat over-eggs the pudding, especially if you state that directly invested trackers would be 2.5% less thanan investment bought through an IFA.

Once you had been away and digested those we would then have a conversation about asset allocation, rebalancing, correlation and how Trackers alone may not give you access to a complete model meaning a core/satellite approach would be worth investigating.

We would talk about how to benchmark performance and discuss what would represent acceptable performance to you - a real return above inflation? a return above cash? a return above the FTSE 100? a net income of £x pm?

We would discuss accessing overseas markets e.g. the US market accounts for the many of the largest, most profitable companies paying the best dividends which you would not get access to through UK trackers alone; some emerging markets can only be accessed via active managers; some government securities, bonds etc can add asset diversification and additional return while spreading the risk

We would talk about some of the strategies active managers can use such as derivatives etc (subject to that being acceptable in your risk profile).

We would talk about how selecting the correct investment vehicle for your circumstances, objectives and investment horizon can help the return you achieve i.e what do you use once your ISA allowance is gone? synthetic ETFs may not be all they appear and may pose more risk than you expect meaning despite looking cheap at face value you may be better opting to use a more expensive 'vanilla' ETF. Is an ETF or OEIC cheaper/better for your circumstances?

Above all I would remind you not to prejudge where I stand on the passive/active argument and that the price you pay for investing 'direct' into some funds using the likes of HL etc is not neccesarily less or even the same as it would be using me and the explicit charging platforms I use.

Not all funds cost the same on all Platforms (although the issues around that may well change as dunstonh has pointed out earlier) and an adviser's job is also to find the most appropriate way for you to access your chosen investment - and that includes cost.

Ultimately I would have no interest in persuading you to begrudgingly use my services. I have no objection to you DIYing but my opinion on matters is formed by more than a contempt for your viewpoint and a vested interest in making you look as bad as possible

HelpWhereIcan

BobQ wrote: »

A fair question for those amateurs who give financial advice to others. But most amateurs only advise themselves not others.

The question an amateur has to ask is whether its good value to get advice or better to do it themselves; and unless they compare their experience with investing a particular sum with the experience of using an IFA with the same investment over the same period they will never know.

Which again is one of the issues I was getting at.

It is all well and good to tell everyone what you got right - Gold, Buy to Let, Mining stocks etc but how many anti IFA amateurs will admit what they got wrong without blaming IFAs, the media etc for the poor decision they made?

An IFA has to give advice which will stand up to some scrutiny - potentially years down the line and with the benefit of 20:20 hindsight.

That means they cannot say "Put it all in Gold", "Buy to Let in Beijing" or "Use Trackers only, active managers never outperform them".

Unfortunately, that is what some people do on the internet with no regard for the person who may take that opinion to heart and lose more than they needed to. They lambast IFAs for generic, often more balanced answers but do not face the same potential consequences for expressing their opinion that an IFA does.

darkpool

dunstonh wrote: »

The only investment I have used that has a charge anywhere near that is Jupiter Merlin's range of funds.

we've already seen the thread where the widow went into an IFA and was advised to buy an investment that had 3% annual charges. we already know that UTs have a TER of circa 1.7%, plus dealing costs.

sooooo i don't think i'm being unreasonably by suggesting that the average punter going to an IFA will be advised to buy investments that have an typical annual charge of 2.5%.

dunstonh

darkpool wrote: »

we've already seen the thread where the widow went into an IFA and was advised to buy an investment that had 3% annual charges. we already know that UTs have a TER of circa 1.7%, plus dealing costs.

sooooo i don't think i'm being unreasonably by suggesting that the average punter going to an IFA will be advised to buy investments that have an typical annual charge of 2.5%.

And if she ended up the Jupiter Merlin funds then she would be very happy with that. You asked if it is ever worth it. I gave an answer that showed it is.

darkpool

HelpWhereIcan wrote: »

I would point you towards https://www.barclaysstockbrokers.co.uk/Market-Insight/Analysis/Barclays-Wealth-Insights/Lists/Special%20Reports/Attachments/160/EQUITY_GILT_STUDY_2012.pdf - especially chapter 5 which provides more detail.

The 5% return is real - above inflation - rather than nominal

The 2.5% you quote would come from the nominal return not the real - so potentially 2.5% from, say, 8% rather than from 5% as you state.

and http://www.investorschronicle.co.uk/2012/02/07/funds-and-etfs/isa-funds/the-true-cost-of-investing-in-funds-oUc8VLh2BcMBacjws7u9UM/article.html

which shows that the 2.5% figure you quote somewhat over-eggs the pudding, especially if you state that directly invested trackers would be 2.5% less thanan investment bought through an IFA.

Once you had been away and digested those we would then have a conversation about asset allocation, rebalancing, correlation and how Trackers alone may not give you access to a complete model meaning a core/satellite approach would be worth investigating.

We would talk about how to benchmark performance and discuss what would represent acceptable performance to you - a real return above inflation? a return above cash? a return above the FTSE 100? a net income of £x pm?

We would discuss accessing overseas markets e.g. the US market accounts for the many of the largest, most profitable companies paying the best dividends which you would not get access to through UK trackers alone; some emerging markets can only be accessed via active managers; some government securities, bonds etc can add asset diversification and additional return while spreading the risk

We would talk about some of the strategies active managers can use such as derivatives etc (subject to that being acceptable in your risk profile).

We would talk about how selecting the correct investment vehicle for your circumstances, objectives and investment horizon can help the return you achieve i.e what do you use once your ISA allowance is gone? synthetic ETFs may not be all they appear and may pose more risk than you expect meaning despite looking cheap at face value you may be better opting to use a more expensive 'vanilla' ETF. Is an ETF or OEIC cheaper/better for your circumstances?

Above all I would remind you not to prejudge where I stand on the passive/active argument and that the price you pay for investing 'direct' into some funds using the likes of HL etc is not neccesarily less or even the same as it would be using me and the explicit charging platforms I use.

Not all funds cost the same on all Platforms (although the issues around that may well change as dunstonh has pointed out earlier) and an adviser's job is also to find the most appropriate way for you to access your chosen investment - and that includes cost.

Ultimately I would have no interest in persuading you to begrudgingly use my services. I have no objection to you DIYing but my opinion on matters is formed by more than a contempt for your viewpoint and a vested interest in making you look as bad as possible

sorry, i just don't get your points about nominal and real returns. You seem to suggest we should just ignore inflation when looking at returns?

sorry, that answer is not good enough to convince me to start using an IFA. It has a fair sprinkling of technical words, like "synthetic ETFs" and "rebalancing" but you've not convinced me that the Fund Industry/ IFAs provide a worthwhile service for the fees they charge.

LOL!!! I would love to hear what you have to say about derivatives, I bet I know ten times as much as you!!!

As an aside, perhaps you could direct me to any IFA forum websites? You IFAs seem happy posting on a consumer website telling everyone what a good job you do, I think it might be fun posting on an IFA website saying what I think of IFAs.

darkpool

dunstonh wrote: »

And if she ended up the Jupiter Merlin funds then she would be very happy with that. You asked if it is ever worth it. I gave an answer that showed it is.

but using that argument the National Lottery is a good investment? After all some people buy tickets and win millions.

It seems to me that one of the main arguments IFAs use it to point at a few UTs that have done well, they ignore the far larger amount of UTs that have done badly.

Did you recommend to anyone to invest in Jupiter Merlin funds?

dunstonh

but using that argument the National Lottery is a good investment? After all some people buy tickets and win millions.

What makes you think that a mid table tracker fund is that difficult to beat?

It seems to me that one of the main arguments IFAs use it to point at a few UTs that have done well, they ignore the far larger amount of UTs that have done badly.

Mainly as you do tend to ignore the ones that do badly. If you eliminate the passive managed, the banks and insurance companies you are left with a smaller core to research from which does improve the odds.

Did you recommend to anyone to invest in Jupiter Merlin funds?

As I said in the post, yes I have.

now, do you think those people would prefer double the return or pay half the charges and got return?

darkpool

dunstonh wrote: »

What makes you think that a mid table tracker fund is that difficult to beat?

well the managed fund industry seems to find it hard to beat the relevant trackers.

i think it's got something to do with the high charges that investors in Unit Trusts have to pay.