IFA : Advised or Discretionary For Investments

gmgohara

I have been looking for a replacement IFA after my previous one gave up and have been meeting a few to see what they can offer.

I currently have a circa £125K portfolio (ISA / SIPP) in a Platform/Wrap.

Offerings made to me can be summarised as follows :

Advisory - Funds picked by IFA with annual ongoing review. Approx cost PA inc wrap / afm / adviser charge in region of 2.1%

Advisory - Using IFA's Risk Based Model Portfolio (internal investment committee etc) with annual ongoing review (and quarterly contact with recommended rebalancing/fund changes etc). Approx cost PA inc wrap / afm / adviser charge in region of 2.2%

DFM - using platform/wrap but then DFM to make all the decisions. Annual / ongoing review provided. Approx cost PA inc wrap / afm / dfm / adviser charge in region of 2.3%

Is there any opinion on what would be most suited / appropriate.

Is DFM overkill for a portfolio of £125K ?

Any comments appreciated (or questions I should be asking !)

Thanks

jem16

gmgohara wrote: »

Is DFM overkill for a portfolio of £125K ?

I would have said so, yes.

What's the breakdown of charges for the wrap platform and the IFA's ongoing fees?

gadgetmind

gmgohara wrote: »

Approx cost PA inc wrap / afm / adviser charge in region of 2.1%

That's roughly half of the return you are likely to get in the foreseeable future. Are you really prepared to give this much to someone else? It's not too hard to get sub 1% and doesn't get difficult until you want to get sub 0.5%, and this is with a diversified portfolio that will perform even bit as well over the long term (before fees) as anything from your IFA.

But you'll have to do some work yourself.

And yes, DFM for what's a small portfolio in the grand scheme of this is total overkill.

Sobryma

This seems a little expensive, something like the Bestinvest Managed Portfolio from £50k works out ~2.0% all in which is still expensive (I use them for my main pension), if you believe the manager has an edge then it may be worth it.

Alternatively you should be able to access a good multi manager fund for less than that in a personal pension and I believe Skandia CRA through an IFA can offer a limited but cost competitive DFM.

If you have discipline/interest you could DIY with low cost passive/active funds or go for managed passive/active funds or a blend of same.

gadgetmind

Sobryma wrote: »

if you believe the manager has an edge then it may be worth it.

True enough, and some people still believe in the Tooth Fairy, so let's live and let live.

Sobryma

gadgetmind wrote: »

True enough, and some people still believe in the Tooth Fairy, so let's live and let live.

:rotfl:

It isn't black and white though....

I get the passive logic and in theory it should work but when the same managers use both approaches passives lag. Not a scientific sample but the following offer active and passive multi asset funds (admittedly over short timescale)

Aegon Portfolios - Actives appear to offer better performance

Architas - Actives appear to offer better performance

Close - 50/50 between the two approachs

Henderson - Actives appear to offer better performance (but very short term)

HSBC - Actives appear to offer better performance

Short term Blackrock Consensus are a lagging active funds in sectors but Vanguard Life Strategy look stronger.

7IM funds use largely passive and have for a number of years and are mid field

That said I am hedging bets with passive in one pension.

grey_gym_sock

the active funds you've heard of tend to be the successful 1s. the unsuccessful 1s are more likely to be closed down, or at least not so heavily publicized.

the next problem is that past success is a poor predictor of future success.

bigadaj

The other thing is that cheap passives have only been around for a limited period of time in many areas.

I'm going to be fascinated to see how the vanguard global smaller companies will perform over a decent period of time, assuming that the whole area will grow to be come a definable sector to allow comparison. I think this should be the ultimate area in which actives should be able to show out performance and will be really interested to see how this compares in the future.

Sobryma

grey_gym_sock wrote: »

the active funds you've heard of tend to be the successful 1s. the unsuccessful 1s are more likely to be closed down, or at least not so heavily publicized.

the next problem is that past success is a poor predictor of future success.

Thats my take - I accept edge exists and that some active managers can add value even after costs, the problem is as a private investor identifying them in advance.

However, the admittedly short history of actively managed passive portfolio's in the UK is pretty weak - all the examples I quoted have a similar active and passive mix and short term the passives with similar asset allocation have fallen behind.

For passives I am just attempting to build a buy and hold asset allocation. For actives I am using a multi manager approach.