Stocks & Shares ISAs

bowlhead99

Brand wrote: »

Is it your guess that all of what MSE calls "auto-managed" ISAs such as Moneyfarm and Wealthify are not really viable? At such low fees I would expect they'd have to gather a very big number of customers to make the owners think they are schemes worth continuing with.

The owners are willing to take a chance, to let the investment go through the 'J curve' of making large early losses and eventually breakeven and then eventually get an upward trajectory. They will only bankroll it for so long though, especially if they can cash out by selling it to another financial backer or industry player.

It would be good if at least one of these auto-managed ETF S&S ISAs could at least keep going, in order to provide this option.

I have some thoughts on this:

What they have going for them is convenience and the illusion of them 'advising' or 'guiding' you to a solution that fits what you want and managing it for you - which is not really tailored personal advice, just putting your in a pigeonhole with all the other investors who fit in that pigeonhole.

However, if you want a fund built using trackers and targeted at a particular level of risk, you could just go to a fund supermarket or a basic ISA place as you mention like IWeb and buy a mixed asset fund which has that particular risk target. For example mentioned here often is the L&G Multi Index range, pick from 3-7 on their scale. Or if you go the Axa self investor website and say you can't be bothered looking at all the fund types, they just show you the Architas range, each with a particular level of risk on that scale. Or if you go to Halifax and click on Investment ISA you can pick high medium or low and get put in that OEIC with a platform fee and an ongoing management fee.

If all that is essentially going to happen is that a manager keeps managing the assets and keeps the fund return in a particular range of volatility, it doesn't really matter if you go to a Moneyfarm or more traditional provider to do it.

Moneyfarm are new so they are doing a promotion where you get the first £10k 'managed' free. But not free of fund costs, just effectively their platform and rebalancing costs and clever thinking etc. So it still costs you 0.25% for the underlying funds/etfs , just like at IWeb it would cost you 0.22% for Blackrock Consensus 60 or 0.31% for L&G Multiindex 5.

If you had £50-60k to put with Moneyfarm they would want 0.25% for the funds and 0.6% for the management. Compare to the L&G risk-targeted fund at 0.31% for the managed multi-asset fund and [either 0.25% for platform fee with a percentage-based fund supermarket or £0 a year platform fee plus a small transaction cost with every contribution made at IWeb].

You are right it is always good to have choice. The problem for the new boys coming in is that they have no track record of how they have managed money and kept the funds in the right risk bracket, so can't really compete with a more expensive discretionary fund manager or the cheaper option of buying a risk-targeted fund from an established manager via a fund platform; and they are only doing a cursory review of what type of risk you prefer rather than having a face to face, so they can't really compete with a more expensive IFA; and they need to get millions and millions under management even before their fees of half a percent or so can generate anywhere near enough income to pay staff and keep the lights on, and actually they are waiving the fees for small amounts invested by thousands of people who only have a few pounds to invest and by fewer people who want to invest £5-10k.

As I'm all for choice I totally agree it would be good if at least one of them survives independently of the big banks and investment houses, as something to fill the gap between different product types. You would naturally expect some consolidation in the industry as the market matures and a number of big-bank type groups will be going towards robo advice.

If you look at other 'disruptive' online firms that came along to change the investment landscape. Zopa for example was groundbreaking in its day as one of the first to market in P2P lending and borrowing. Plenty of money been lent out and got back safely there. And the 'first movers' lending there in the early days got a good deal before the competition came along and the market rates shifted down. Some P2P providers inevitably went bust. Some like Zopa are still going.

However, if you go on to the P2P thread here, nobody is saying oh yes I have lots of money with Zopa these days. The savvier customers are not using it because their model does not allow you to get a huge amount more than bank savings rates, because they are competing with the banks lending out at low rates and taking thin margins over savings rates (Sainsbury will do a five year loan at 2.8% on £15k). Yet Zopa money is not protected like a deposit because it is an investment not cash. So, they stop losing the savvy, early-adopter customers and are now reliant on customers who don't know better.

There is of course still a place for P2P. Just as there will probably still be a place for robo-advice in the future in an ever more automated and connected world. However, you'll see consolidation, failures, erosion of first-mover advantage, and the smart customers may get so smart that they just go to the competition, which is not necessarily a fellow robo-advisor but a basic fund supermarket platform with lots of well labeled and risk-rated funds from big brand fund managers. So the smart customers leave. Then the wealthy customers leave and go back to IFAs because they are frustrated that when their robo-advised fund crashed they couldn't talk it through with anyone other than a robot.

You are left with the sticky customers, people who are lazy or who not particularly investment savvy. And people who are lazy or not particularly investment savvy, do not end up with a good product.

dunstonh

DunstonH thank you very much for that info. Is it your guess that all of what MSE calls "auto-managed" ISAs such as Moneyfarm and Wealthify are not really viable?

I think it is going to be extremely hard for them in a market that is overcrowded and low margin. Lets look at the platform side first. Most investment platforms are not profitable. Those that are profitable are generally low margin or have other areas that they make money on. Platforms have been running for over 15 years now. The platforms require scale to become profitable.

Moving on to robo-advice. Most of these robo-advice only firms (which is what they are known as in the trade - not sure where auto-managed has come from for MSE to use it) have turnover lower than a small local IFA firm. They need scale and they need to get that scale before their funding runs out.

Nutmeg has been running since 2012. In 2014, it was a similar size to a single office IFA firm. Its more like a large two office IFA firm now. That is just to put its size in context. in 2012, it lost £1.8 million. In 2013 it lost £3.6m and in 2014 lost £5.8m and in 2015 it lost £9m. Losses are not an issue if you have backers that will fund it and you have a realistic turnaround date. Its turnover increased to 1.7m in 2015. However, its operating costs were 10.8m. Every year since it launched, it has managed to increase turnover. However, it has also managed to increase losses at a rate faster than than turnover. How long will the backers give it before pulling the plug.

Part of the problem is that most people likely to use a robo-advice service are going to be very small investors. So, percentage based fees are not going to raise much and you have the added cost with volumes. Larger investors do cross subsidise the smaller ones to some degree and the robo-advice services are not geared for larger investors. Larger investors are either likely to DIY via a platform or use an IFA. Full advice cannot compete on cost with robo-advice. There are too many regulatory requirements preventing that and robo-advice is limited in what it will do. Although it can do it not far off. DIY on platforms can beat robo-advice on cost. Full advice is not about cost as much and not so much about the investments. More frequently it is covering things like "how much can I spend on holiday this year" or how do I pay for this or that. i.e. financial planning (both casual and formal). Robo-advice cant do that.

All that said, I do believe that robo-advice has a strong future. You have a generation coming through who measure quality of investment by how many facebook likes it has and how good the app is. They dont want face to face advice. I see IFA numbers continuing to decline as they focus more on higher net wealth clients and the older generations and those where the internet is not a way of life. However, I think some of the early robo-advice companies came in too early and suffered heavy set up costs and have too many small investors and will either shut up shop sooner or later or have to sell up to larger players looking to buy market share.

Brand

bowlhead99 wrote: »

. . .
What they have going for them is convenience and the illusion of them 'advising' or 'guiding' you to a solution that fits what you want and managing it for you - which is not really tailored personal advice, just putting your in a pigeonhole with all the other investors who fit in that pigeonhole.

However, if you want a fund built using trackers and targeted at a particular level of risk, you could just go to a fund supermarket or a basic ISA place as you mention like IWeb and buy a mixed asset fund which has that particular risk target. . . . .
If all that is essentially going to happen is that a manager keeps managing the assets and keeps the fund return in a particular range of volatility, it doesn't really matter if you go to a Moneyfarm or more traditional provider to do it. . . .

Bowlhead, thanks very much for your detailed thoughts

Advice: yes, a new investor would have to understand that they are not getting full advice on their life, but given that they have decided they want to hold a bit of their money in shares, just some monitoring of that money

Pigeon-hole: but a new investor would not mind this at all, rather than having to guess on the matter themselves

Mixed asset fund: yes you could, but you can see that a new investor would find this paragraph difficult to know what to do. With an "auto-managed" or "robo-firm they would just hand over their money to one of these firms and not have to think much thereafter.

Risk and volatility: yes, good point than how the word "risk" often used; low risk does not mean you won't lose money, but that the value of your money does not jump about quite as much.

Traditional provider: no generally I don't think they would oversee the investment to quite the same extent as a auto-managed or robo would they? Once you have chosen, say, Fund A B and C, the provider will just keep you in those funds until you say sell one of them.

it just struck me that the auto-managed concept looked a decent idea for those with a very simple investment outlook and thinking that perhaps ETFs can be a cheaper way to achieve this than using fund supermarkets, whose charges can work out a little higher.

Brand

DunstonH That is an excellent discussion of the robo-advice alternative to a fund supermarket or stockbroker. Thank you, and I hope other readers digest your useful post.

I suppose in effect it is like buying a S&S ISA direct from a fund manager who runs a fund of ETFs ( and who also adjusts the balance of funds towards shares in proportion to the level of risk the client says he is willing to take
Perhaps one day a big stockbroker/bank/asset manager may offer a cheap robo-ETF- ISA as an adjunct to their main business and that would solve the question of financial backing.
By the way, I'd imagine a human person does the adjustments; I can't imagine them trusting it purely to a computer!

supermoneykid85

Does anyone know, if you have a S&S ISA and you do self assessment for tax return, do you have to declare the interest?

le_loup

No you don't.

tomyd

Hi all,

There's loads of information and commentary on here - I've found it really useful and thought provoking.

Sorry if this is all a bit basic, but, I previously posted trying to find out more about how more experienced people choose their Stocks and Shares ISA - I was setting up my own to start investing. I just thought I'd share my 2 pennies worth after the process of finding a provider.

It still seems a bit of a mine field to me, the fees seem especially complicated (I did use an ISA comparison site - Compare An ISA .co.uk (sorry - as a newby, seems I can't post a URL!) - which I found useful as a starter on comparing the fees).
After I'd got an idea on the fees I then went down the root of looking at what the providers offered in the way of tools I might use - horses for courses, but being a novice starting up in investing, I felt controlling my costs would be a good place to start and then I can always move to a more "expensive" provider if I feel I need access to their products/tools.

I think, as per the investments one would hold in the ISA. doing your own research and thinking about what you want from a broker is the only way to go at it.

Cheers.

george4064

tomyd wrote: »

Hi all,

There's loads of information and commentary on here - I've found it really useful and thought provoking.

Sorry if this is all a bit basic, but, I previously posted trying to find out more about how more experienced people choose their Stocks and Shares ISA - I was setting up my own to start investing. I just thought I'd share my 2 pennies worth after the process of finding a provider.

It still seems a bit of a mine field to me, the fees seem especially complicated (I did use an ISA comparison site - Compare An ISA .co.uk (sorry - as a newby, seems I can't post a URL!) - which I found useful as a starter on comparing the fees).
After I'd got an idea on the fees I then went down the root of looking at what the providers offered in the way of tools I might use - horses for courses, but being a novice starting up in investing, I felt controlling my costs would be a good place to start and then I can always move to a more "expensive" provider if I feel I need access to their products/tools.

I think, as per the investments one would hold in the ISA. doing your own research and thinking about what you want from a broker is the only way to go at it.

Cheers.

This is a great comparison website: http://monevator.com/compare-uk-cheapest-online-brokers/

There are a few key points you need to consider with the various platforms and their charges:

- Would you be better off with a fixed fee charge or a % of assets charge? (Need to think about the size of your portfolio now and in the short/medium term)

- What kind of assets are you going to hold in your ISA? Funds or investment trusts/ETFs/shares? (Note that many providers have a different charge for funds vs investment trusts/ETFs/shares)

- How often am I going to trade? And how much is this going to cost me in dealing charges? (Note some platforms have free dealing charges for funds, but this is compensated with a higher platform fee and vice versa).

Koj

Is there any sites that show comparisons between managed fund performance. can find plenty on costs but nothing which shows how various managed funds are actually performing.

dunstonh

Koj wrote: »

Is there any sites that show comparisons between managed fund performance. can find plenty on costs but nothing which shows how various managed funds are actually performing.

Trustnet. Morningstar to name the two big ones.

However, do be aware that past performance of funds in a sector is not all equal. Higher risk funds in a sector will be expected to outperform lower risk ones in a growth period. Lower risk funds will typically outperform higher risk ones in a negative period.

So, you have to look at the risk of each fund and performance relative to that risk to see if it is offering value or not.

To give you an idea of the risk spread, the Mixed 40-85% equity sector has funds covering 6 different risk profiles on our 1-10 scale. The fund coming in way down the list in terms of performance could be the most suitable fund for you.