A tale of 4 IFA's... (subtitle - why is it so hard?)

grey_gym_sock

fairleads wrote: »

However, from a lump sum perspective, my decision to enter/exit the market was /is governed by a basic guideline - follow the income.

wait a minute ... are you implying that you are IFA4?

GhIFA

fairleads wrote: »

When a client approaches an IFA for advice it follows the advice must be, as far as is reasonably possible, fit for purpose.

I didn't read beyond this bit- No advice has been given, no report has been issued, no investment strategy discussed - you don't seem to be able to grasp that. It doesn't matter what you feel an IFA is duty bound to do, you are wrong. I'll stick to operating the way that the FSA require me to, and not according to the ramblings of someone who plainly doesn't understand.

Daniel_Elkington

I'll explain what we do and maybe that will help. Seems there are a lot of wannabe stock pickers on here.

We would NEVER place it all in cash. This is impossible to time and massively risky.

If you didn't agree with this then complain, he probably owes you a few grand for being such a moron and trying to time the markets.

We buy in asset allocations from renowned actuaries - these make the money long term.

We then pick sectors to track and sectors to look at active fund managers (core / satellite). This is based on evidence. Efficient Market Hypothesis doesn't work in practise, in some inefficient markets trackers still outperform 2/3 of the bunch.

The investment strategy is outsourced, we are not actuaries but IFA's. They have maths Phd's and statistical variance software the likes of which would make most people's brain's explode simply trying to understand what the principle is, let alone how they work.

Our job (if a client wants an individualised investment) is to look at which industry expert we think will do the job.

In the case of trackers we look at tracking error and cost. Some trackers have high cost but insanely low tracking error, some trackers have low cost and a large tracking error. We look at ETF's and OEIC/UT's for this. IT's tend not to provide tracker strategies that actually work.

In the case of the satellite holdings we prefer IT's if a good one is available. However many OEIC's are pretty good (first state GEM leaders being one we like). They must have a 5 year history, they must have good performance indicators and they must have a good manager who has been there a while - it's the management you are investing in so we investigate them intensively. As a tie breaker we will call them and interview them.

So:
- asset allocation we buy in the best
- Core funds are trackers that actually track
- Satellite funds are active funds with good prospects.
- The portfolio is reviewed regularly (daily with our wealth management clients).

At every stage we are investing our clients money in, what we feel, are the best people in their field. Trying to time the markets and invest direct we don't do.

Our clients have 11-20 of the top experts in the industry in their portfolio. It's like a university getting Dawkins, Cox, Berners-Lee and a bunch of marginal improvement guys on their research bench - it's no guarantee of success, but any rational reasonable person can understand that this is more likely to be successful.

Unless you sit on the LSE you aren't going to be in touch. There are tonnes more factors than simply what you can get from a computer screen. If you've ever been they are like a herd of wilderbeest, any sign of danger and they stampede - markets are very irrational and you need someone with a cool head to do something useful in them.

Over-reacting like IFA4 did was dangerous, irresponsible, self-motivated and callous. They did not have your best interests at heart and deserve the full weight of FOS throwing at them as they are likely to not provide you with adequate compensation in the hope that over the next 6 months of FOS getting involved and making a decision, the markets crash so they can be 'proved right all along'.

fairleads

waccamole wrote: »

I Jan 2012 I started looking for an IFA to assist with sorting out mine and partner's pensions. This is my experience:

Looked for a local IFA using unbiased.co.uk not many listed in my area, some had links to non-existent websites - slim pickings. Chose one that seemed might be suitable:

IFA no. 1 - spoke to him on the phone, he asked me to write to all our pension providers to get up to date info and said he would call me back. Thought this was a bit odd as other IFA's I've had did this for me. Anyway, I went along with it but when he called I hadn't had all the replies so he said he'd call me back in a week or so - he never did.

Tried Google...

IFA no.2 - sent message via the website, called me the next day - so far so good. Saw this guy at his plush offices in town. He took all the details. At our second meeting all he did was tell me what I already knew, I was keen to pay a fee rather than commission but he said 'we have that option but nobody chooses it'. Didn't feel comfortable with that.

IFA no. 3 - having been unable to find anyone nearer went to this chap's even plusher offices in a town some miles away. Nice enough fellow but he was clearly used to handling much larger amounts. Checked on this forum what was thought of his fees - consensus was they were high.

(by now it's summer 2012)

IFA no. 4 - tried searching for an IFA in a nearby town on the internet. Phoned up the one I liked the website for most and spoke to the IFA. Had a long chat, he seemed reasonable so arranged an appointment at my home (he lives quite nearby). We got on OK, what he said made sense. Signed the necessary forms and off we went. Finally moved the pensions and S&S ISA to Aviva wrap in October. Recently discovered (subject of another thread) that everything has been in cash since then. Explanation being that he thought the market was high. I didn't agree to that strategy and would not have disagreed with it. I didn't get a written report.

I've had a couple of decent IFA's in the past (90's and early 00's) and one excellent one (he left the country!). How come it is so hard to find one now?

All I want is some decent advice and value for money.

Based upon what the IFAs here say, it would appear that the behavior of 4 out of the 4 IFAs you’ve so far contacted have been less than satisfactory. Further, while said IFAs are long on criticism and short on information, let alone advice, I’d take the hint and go it alone. Retirement is too important a factor in one’s life to delegate total responsibility to a third party. There is no magic involved

fairleads

Daniel_Elkington wrote: »

I'll explain what we do and maybe that will help. Seems there are a lot of wannabe stock pickers on here.

We would NEVER place it all in cash. This is impossible to time and massively risky.

If you didn't agree with this then complain, he probably owes you a few grand for being such a moron and trying to time the markets.

We buy in asset allocations from renowned actuaries - these make the money long term.

We then pick sectors to track and sectors to look at active fund managers (core / satellite). This is based on evidence. Efficient Market Hypothesis doesn't work in practise, in some inefficient markets trackers still outperform 2/3 of the bunch.

The investment strategy is outsourced, we are not actuaries but IFA's. They have maths Phd's and statistical variance software the likes of which would make most people's brain's explode simply trying to understand what the principle is, let alone how they work.

You are joking, right?

Our job (if a client wants an individualised investment) is to look at which industry expert we think will do the job.

In the case of trackers we look at tracking error and cost. Some trackers have high cost but insanely low tracking error, some trackers have low cost and a large tracking error. We look at ETF's and OEIC/UT's for this. IT's tend not to provide tracker strategies that actually work.

In the case of the satellite holdings we prefer IT's if a good one is available. However many OEIC's are pretty good (first state GEM leaders being one we like). They must have a 5 year history, they must have good performance indicators and they must have a good manager who has been there a while - it's the management you are investing in so we investigate them intensively. As a tie breaker we will call them and interview them.

So:
- asset allocation we buy in the best
- Core funds are trackers that actually track
- Satellite funds are active funds with good prospects.
- The portfolio is reviewed regularly (daily with our wealth management clients).

At every stage we are investing our clients money in, what we feel, are the best people in their field. Trying to time the markets and invest direct we don't do.

Our clients have 11-20 of the top experts in the industry in their portfolio. It's like a university getting Dawkins, Cox, Berners-Lee and a bunch of marginal improvement guys on their research bench - it's no guarantee of success, but any rational reasonable person can understand that this is more likely to be successful.

Unless you sit on the LSE you aren't going to be in touch. There are tonnes more factors than simply what you can get from a computer screen. If you've ever been they are like a herd of wilderbeest, any sign of danger and they stampede - markets are very irrational and you need someone with a cool head to do something useful in them.

Over-reacting like IFA4 did was dangerous, irresponsible, self-motivated and callous. They did not have your best interests at heart and deserve the full weight of FOS throwing at them as they are likely to not provide you with adequate compensation in the hope that over the next 6 months of FOS getting involved and making a decision, the markets crash so they can be 'proved right all along'.

Very eloquent, but where did you put your money in Oct 2012?

fairleads

GhIFA wrote: »

I didn't read beyond this bit- No advice has been given, no report has been issued, no investment strategy discussed - you don't seem to be able to grasp that. It doesn't matter what you feel an IFA is duty bound to do, you are wrong. I'll stick to operating the way that the FSA require me to, and not according to the ramblings of someone who plainly doesn't understand.

One thing i do understand is that, since 1985 until Dec 2012, that when held in a pension, cash would have beaten a FTSE 100 tracker. Lesson 2 - history has a habit of repeating itself.

dunstonh

One thing i do understand is that, since 1985 until Dec 2012, that when held in a pension, cash would have beaten a FTSE 100 tracker.

I cannot get any data to compare that. What is your evidence?

I just pulled data using an old UK Equity fund from 1985 to date and compared it with 5% p.a. compound interest. The fund returned 725.44%. 5% interest returned 291.96% (source FE Analytics).

You would have needed interest at 8% p.a. every single year for that to be beaten.

Daniel_Elkington

fairleads wrote: »

Very eloquent, but where did you put your money in Oct 2012?

Hi there, thanks for the response.

Please do not quote me and add text to the quote, this is misrepresentation and wholly unfair.

Actuarial asset allocation calculation techniques attempt to find the best return for the most appropriate level of risk leading to an efficient frontier based on a number of assumptions about future investment returns and future volatilities.

The way of calculating the assumptions is not straightforwards or easy.

When looking at the individual investor a low risk investor is likely to have a steep parallel to the frontier and a higher risk investor will have a shallow parallel to the frontier. It is generally considered that the average investor will have a line at approx 45 degrees to the x axis - which is risk.

Bearing in mind most people struggle with the concept of auto-enrolment I think my comment, whilst a bit conceptual, is accurate. I am not joking.

For my clients their position in October 2012 was relative to their attitudes to risk and investment, which is a lengthy conversation and beyond the scope of this forum. Give me a call if you want me to explain this approach better.

Just checked a few of the more standard medium risk portfolio's we had in Oct '12. They were largely 40% equity, 50% bonds and 10% absolute return, in various geographies, which tended to return about 0.5-1.5% over October 2012. Compared with Mixed Investment 40-85% shares this is a good level of outperformance as the sector returned roughly 0-0.2% on a bid/bid basis. This isn't the benchmark, but the old balanced managed sector, which most people have been invested in at some point.

If this portfolio were held in a tax efficient wrapper such as a pension or SSISA then the return would have been greater (0.6-1.8%) due to tax being reclaimed on income.

We don't time market crashes or react to them, in general - this is dangerous. Instead our portfolios focus on downside protection. It is better to make 8% one year and lose 5% the next than to make 12% one year and lose 11% the next.

We do tend to switch to different tactics, for instance this year we are using EU opportunities style funds instead of trackers. We will possibly be looking to add some satellites to our UK equity core (tracker) holdings in the near future with some small caps funds due to the massive tax breaks the chancellor introduced yesterday.

We may even start to move back into property funds, but bearing in mind the reason we got in the detritus last time was because people who couldn't afford a mortgage were given one, this could simply add some data to our deterioration curve and may start moving more assets into some form of uk property hedge. Don't know yet - not enough data.

Proxy

I think he is joking. I don't know any actuaries with maths PhDs. And I am one.

redbuzzard

fairleads wrote: »

One thing i do understand is that, since 1985 until Dec 2012, that when held in a pension, cash would have beaten a FTSE 100 tracker. Lesson 2 - history has a habit of repeating itself.

I can just about make that work by ignoring reinvestment of the FTSE income - do you throw all your dividend cheques away?