Discretionary Fund Management

henchard

I have 500K+ to invest and would like to talk to some Discretionary Fund Managers who have a private client service

How do I find the good ones? What are typical fees? What should I watch out for?

Any pointers or advice gratefully received

Rollinghome

On of the biggest problems is getting an accurate idea of their success record. Not entirely unreasonably they tend to either say "it depends" or to give some meaningless waffle such as "last year we out-performed the FTSE by x% for many of our clients".

The other problem is that it's difficult to get recommendations. By definition, the people who use their services tend not to be very financially clued up. Too often they're full of praise for someone who's nothing but a slick salesman or alternatively overly critical of someone decent because of a reasonable decision that didn't work out as expected.

One way might be to use firms that also run retail funds with published figures such as Ruffer and a few others though £500k might be a bit small for them. Whatever you do, don't be seduced by the company that serves you the best coffee.

You might also look at this article on finding an IFA by Justin Modray. himself formerly an unusually well-qualified IFA: http://candidmoney.com/questions/question584.aspx

bigfreddiel

what makes you think fund managers know more than you do?

In an experiment a group of professional fund manages were pitted against a group of students.

Both were given historical data on a selection of blue chip shares and asked to pick the winners each month

after a year the students beat the professionals

students picked the right stock 49% of the time

professionals only 40%

professionals who were absolutely certain they had picked correctly only had a 12% success rate
[journal of behavioral finance 5 - 2004]

moral of this tale - you can do better than the professionals

fj

henchard

bigfreddiel wrote: »

what makes you think fund managers know more than you do? '........................snip................
moral of this tale - you can do better than the professionals

fj

I'm reckon that if I was to apply myself to the task, do the research and work at it I could make a reasonable job of it.

However, I'm retired and really don't have the inclination. I want to spend several months of the year travelling (ageing hippy) without having to keep checking what my investments are doing. i.e. I'd rather pay someone good to do the job for me. What I object to is paying someone who is not good!

Aegis

bigfreddiel wrote: »

what makes you think fund managers know more than you do?

In an experiment a group of professional fund manages were pitted against a group of students.

Both were given historical data on a selection of blue chip shares and asked to pick the winners each month

after a year the students beat the professionals

students picked the right stock 49% of the time

professionals only 40%

professionals who were absolutely certain they had picked correctly only had a 12% success rate
[journal of behavioral finance 5 - 2004]

moral of this tale - you can do better than the professionals

fj

Do you have a link to the article? I'm curious to read how the experiment was constructed and played out.

wriggly

henchard wrote: »

However, I'm retired and really don't have the inclination. ...What I object to is paying someone who is not good!

Well, most advisors, discretionary or not, are not particularly good at investment. What they might help with is tax-effectiveness.

The truly lazy investment:

1. stick a few years worth of cash in high-interest savings accounts (or NS&I inflation-linked bonds, if they become available).
2. put the rest into a Vanguard LifeStrategy fund (60% equity would be a middle-ground choice). With your assets, you can invest directly with Vanguard and pay around 0.3% per year.

Find an IFA who is willing to be paid a fixed fee to help you do the above in the most tax-effective way for your circumstances.

bigfreddiel

Aegis wrote: »

Do you have a link to the article? I'm curious to read how the experiment was constructed and played out.

[journal of behavioral finance 5 - 2004]
sorry no link

fj

bigfreddiel

henchard wrote: »

I'm reckon that if I was to apply myself to the task, do the research and work at it I could make a reasonable job of it.

However, I'm retired and really don't have the inclination. I want to spend several months of the year travelling (ageing hippy) without having to keep checking what my investments are doing. i.e. I'd rather pay someone good to do the job for me. What I object to is paying someone who is not good!

well, the chances are you will pick someone who is not good and you will only find out when your portfolio is down - and there will be no recompense from the advisor as he/she has only sold you advice not a guarantee. if you want to risk it go for it!

but all is not lost - you are the ideal person to go for a passive investment portfolio (because you wont be in a position to fiddle with it ) - once set up it requires no work, tracking, or worry and its low cost - once a year rebalance it to its original proportions.

time to set up - probably a couple of hours

and maybe spend one day just working out what to do first - that leaves you 364 days to get on with your hippy lifestyle

what do you need to do - here's a simple procedure

take your age - 60 say

and invest (100-60)% ie 40% in equities
30% in gilts and bonds
25% in property
5% in cash

use low cost trackers and/or etfs(physical) with ters of less than .5% thats one half percent not 5%!

split equities equally uk/us/far east/japan
split equally on gilts and bonds
split the property equally uk/us/far east
cash use an instant access cash isa

at the end of year 1,2,3,4.... just rebalance by selling and buying to restore the original proportions - should take a day tops to do that

simples

glad to help

fj

Aegis

bigfreddiel wrote: »

[journal of behavioral finance 5 - 2004]
sorry no link

fj

I'm curious where you read it then. Presumably you didn't just pick up a copy of the journal of behavioural finance from 8 years ago and found an article that you loved so much you had to create a thread on this forum about it.

Genuine question here: have you actually read the article yourself, or are you simply looking at someone else's conclusions and reposting them here as your own?

gadgetmind

Aegis wrote: »

Presumably you didn't just pick up a copy of the journal of behavioural finance from 8 years ago and found an article that you loved so much you had to create a thread on this forum about it.

He didn't create this thread and merely contributed to it. And I also have shelf-fulls of old journals with pages marked and some notes (now electronic) of where relevant articles are. Nowadays I use electronic subscriptions, but older stuff often isn't available this way.

gadgetmind

henchard wrote: »

I have 500K+ to invest and would like to talk to some Discretionary Fund Managers who have a private client service

That's a reasonable chunk of change, and well into IFA territory, but perhaps not enough to interest most DFMs. This is no bad thing as you really do have to put a lot of trust in a DFM and this has proven to not always be a good thing.

How long do you want to invest it for, and with what goal in mind? What is your attitude to risk? (How would it feel if that £500k was down to £300k or less in a year's time?) Have you considered the IFA route, or learning how to manage your own investments, and if you're rejected these options, then for what reasons?