Managed fund service

Mensch

Hope someone can help my wife with this problem. I am certainly out of my depth. Grateful for any enlightenment.


Her IFA has recommended she put £60,000 into a managed fund service with an ongoing charge of 1.86% for 25 years - 0.62% ongoing fund charge, 0.5% adviser remuneration, 0.38% platform charge and 036% portfolio manager fee.


If we can assume an annual average increase of 5%, according to the illustration provided, she could expect in the region of £200,000 in return.


Why then does the illustration show that, if only investment charges were taken at the end of that period, that sum would become £141,000 and if all charges are factored in, her return would be £125,000?


I'm no good at working out compound interest but surely them taking £75,000 out of a total of £200,000 is a bit more than 1.86% even over 25 years?


What am I failing to see (and I'm sure it will be something obvious!)?

Archi_Bald

Sounds roughly about right - it's the effect of charges. The money doesn't grow at 5% but by 5% minus 1.86% = 3.14% each year. That's why keeping your charges as low as possible is very important.

The 5% is of course not guaranteed but the charges are probably going to accrue at 1.86% per annum regardless.

The proposed fund seems to be attracting a heck of a lot of charges - which fund is it? Also, what does the adviser do for the 0.5% each and every year?

Mensch

It's with Brewin Dolphin and the advisor says it's only through his firm that such a small investor as my wife would be able to gain access to it.


Thanks for the response.

steelbru

If no charges, and fund grows at 5%pa, then £60,000*((1.05)**25) = £203,181

If all above charges are assumed, then growth rate is 5 - 1.86 = 3.14%, so £60,000*((1.0314)**25) = £129,966

Go DIY, choose a tracker with say 0.25% annual charge, on a platform at say 0.3% annual charge, so total annual charge of 0.55%, so assumed growth rate of 4.45%, then £60,000*((1.0445)**25) = £178,181

Given that on average trackers beat managed funds, then are you happy with the effect those fees could have ?
Compounding of charges has a huge effect that lots of people don't realise.

enthusiasticsaver

Are you sure she would not be better off putting the money into a global tracker fund rather than managed? The charges are much lower and there is a school of thought which says managed does not outperform the market in the long term. It would require you doing your own research to understand the risks of course.

Archi_Bald

Mensch wrote: »

It's with Brewin Dolphin and the advisor says it's only through his firm that such a small investor as my wife would be able to gain access to it.

There are hundreds of funds available openly which costs a lot less. It sounds they are trying to exploit your/your wife's lack of investment knowledge.

Mensch

What a dastardly thing to do! We thought he was our pal!


Thanks a lot, guys. I've already got investments in trackers but my wife's not gonna listen to me!


Independent advice from you folks is what she's looking for. Brilliant.

noggin1980

He's not doing anything shocking, if you want advice from an advisor you'll pay for it, if you think that advise is worth 0.86% a year go for it. I don't.

I'm sure he's not trying to rip you off, I'm sure he believes that's a good place to put her money (and it may well be) but the balance of probability suggest she'd do better with a cheap tracker. Or if she wants a managed fund chose one yourself and pay a total of 0.75-1% ish rather than 1.86%

dunstonh

What a dastardly thing to do! We thought he was our pal!

Do consider that there is some inaccurate information on this thread and that there is a bias in the comments made here.

Investing is about opinion. he is doing nothing wrong. He is recommending a discretionary investment service using investment professionals. That said, I do not personally like DIMs but others do. I think they are an expensive option that doesnt offer value above cheaper options. Again, opinion. Those above have said you should invest in trackers which are cheap. That will give you mid table consistency.

mark55man

are you happy you know enough to choose the right trackers (eg Equity only, mixed asset allocation, global / nationwide), and just as important that you are happy you have the right frame of mind to manage your own investments

read this - https://forums.moneysavingexpert.com/discussion/4392271 then have another think. In reality the choice is not between a likely £125K or £200K its that you could take £60K and end up with half or none.

as dunstonh says (though the charges might be a bit steep you pay for confidence) - also as the charges are taken annually its not like he himself gets 70K he gets (some of) 1.86% of your pot every year or about £1k a year. I wouldnt pay that but there are worse investment scenarios - eg buying a tracker just before 2007 crash when you would have lost half

The most striking statistic I ever saw was that over most ten year periods private investors under perform every single asset class (because the buy high sell cheap and trade too often)

Archi_Bald

dunstonh wrote: »

Do consider that there is some inaccurate information on this thread

Could you correct the inaccuracies please?

dunstonh wrote: »

there is a bias in the comments made here.

agreed.

Financial advisors like yourself would be expected to defend their existence, and they are best positioned to do so.

Equally, there are many people who are successfully DIYing their investments and don't see the need to employ a professional. If you subscribe to views of the well respected Lars Kroijer, you can do it all yourself at a fraction of the cost a Financial Advisor would charge you.

In some cases, it would be very risky and irresponsible to DIY. In others, DIY would be a no-brainer, and there are many cases in between.

I suppose it's a bit like wallpapering your house. If you know what you are doing and if you are happy with your wallpapering skills and with your quality of work, you pay a lot less for a finished room than if you hire a professional decorator. If you overestimate your skills, you could end up with a right old mess.