Managed fund service

dunstonh

Could you correct the inaccuracies please?

Suggesting to an inexperienced investor that they should invest in a global equity tracker. That would be way above the risk profile of a typical UK investor. If the Op is new to investing, then that is likely to be an uncomfortable rollercoaster ride and makes no consideration for tolerance to loss in respect of behaviour and capacity for loss.

Or choosing one tracker. That is putting eggs in one basket and bad investing.

There is also the point that trackers beat managed. That needs a bit of context in it. Trackers generally come in mid table in discrete periods. However, they provide mid table consistency and cumulatively, they tend to rise up the performance tables at that point. There are some areas where trackers make perfect sense. There are other areas where managed can make sense. If an adviser recommended the things above in the way they have here it would be a mis-sale.

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

I always try to keep balance between DIY and advice. However, what made me respond as I did is that the OP has taken the opinion of some people on the internet as being suitable advice when some of it is highly unlikely to be suitable or sensible. At the same time, they now think their adviser has done wrong when he has done nothing of the sort.

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.

Exactly. Get it right and you can save money and get a decent job done. Get it wrong and it can be an expensive mistake.

addedvaluebob

There is no point using an IFA to invest this money. Do your own research and there are plenty of funds as the other posters have mentioned. Over 25% of the total fee payable will be going to your IFA over the next 25 years. Even using ball park figures, this is going to be at least £15,000. Does your wife really want to give £12 a week (£600 pa) for doing little more than initially researching funds and sending out the Brewin Dolphin statements each year.

Archi_Bald

dunstonh wrote: »

Suggesting to an inexperienced investor that they should invest in a global equity tracker. That would be way above the risk profile of a typical UK investor. If the Op is new to investing, then that is likely to be an uncomfortable rollercoaster ride and makes no consideration for tolerance to loss in respect of behaviour and capacity for loss.

Or choosing one tracker. That is putting eggs in one basket and bad investing.

That's not really inaccuracies - more like differences in opinion, which there will always be.

dunstonh

Archi_Bald wrote: »

That's not really inaccuracies - more like differences in opinion, which there will always be.

Ok. It would be a very bad idea. Almost certainly unsuitable and would likely be classed as mis-sale if recommended professionally.

bowlhead99

Archi_Bald wrote: »

That's not really inaccuracies - more like differences in opinion, which there will always be.

You're right that there are differences in opinion when it comes to investing. You made the sensible point above that there are a whole variety of investment funds available at lower fees, which is true. I don't think anyone is denying that.

However I can see why Dunstonh says it verges on 'inaccuracies' or bias.

Consider the advice given -
noggin: "suggest she'd do better with a cheap tracker"
enthusiasticsaver suggests "better off putting the money into a global tracker fund rather than managed"
steelbru: "Go DIY, choose a tracker with say 0.25% annual charge, on a platform at say 0.3% annual charge"
you: "sounds they are trying to exploit your/your wife's lack of investment knowledge"

So, one way of looking at it is that the wife learning to DIY and getting some trackers is the most effective solution.

The counterpoint is that a qualified professional who, unlike anyone here, has actually spoken to the person in question and assessed her goals, needs, understanding, capacity for volatility and risk etc, - has determined that a tracker is not the optimum solution for those needs, in giving her his professional and regulated advice.

The people here have no real idea of what the OP's wife wants or needs. And some of them will be less experienced than others. On the one hand, Mensch might think it's great that he can tell his wife that some anonymous strangers on the internet have found a cheap solution as to how to generically invest and return similar figures to a set of indexes over time ; she just needs to decide which indexes are the appropriate ones to track, and when, and she's all set. However, if her husband is thus far unable to convince her to take his opinion over the adviser, he may be likewise unable to convince her to take the opinion of anonymous strangers on a free discussion forum, over the adviser.

Some people get a set of ETF trackers with no platform fee needed and pay 0.2-0.3%. Some people pay a platform fee and then get a set of index funds and pay 0.5-0.6% total. Some people pay a platform fee of 0.2-0.4% and then buy a managed fund for 0.6-0.8% spending 1% in total. The charges are only one part of the returns so the people spending 1% do not necessarily get a worse result than the people spending 0.3%.

The suggestion from the IFA was to spend the 1% on the fund and platform combo. Using the IFA to provide advice at 0.5% and a discretionary manager at 0.3% added to the costs, but they are buying something different; they are buying more, over and above just the fund(s), so the 1.8% isn't comparable to the 0.3% ETF tracker or the 0.6% fund platform with tracker fund or the 1.0% fund platform with managed fund.

Consider a choice made by a director at a large company who's been put in charge of distribution. If he's not an expert in this area he could get in a consultant to advise on transportation strategy - are we doing road, rail, air? Then perhaps an outsourced logistics firm to integrate the warehouse operations with the fleet of vans and lorries, and a fleet manager to oversee day to day operations, and a bunch of lorry drivers to do the driving.

This could all be expensive and impact profitability. However, if the director is not experienced and/or does not have enough hours in the day to do the work of the transportation strategists and the logistics specialists and the fleet manager, they might represent money well spent.

Probably what he doesn't need is Bob the driver yammering away in his earhole, "come on mate this is hella pricy, stop dicking around with these consultants, me and Dave can get a GPS map on Daves iphone and a van from Easyrentals at a fiver an hour, just gimme the boxes and we'll have done half of the drops to Birmingham by teatime". Bob may of course be factually correct, and certainly if he has 60 packages instead of 6 million his solution is more likely to be appropriate.

So, the IFA is looking for 0.5% a year for his ongoing servicing in relation to this investment - which is starting off at £300 on the amount we're talking about. The question to ask would be, if it is all just perhaps going to go into one or two or a few funds pitched at one risk/volatility setting with the discretionary fund manager overlaying some monitoring - and Frau Mensch's goals and volatility preferences are not going to change next year - is it really going to take £300 of cost/profit next year for the IFA to consider that the DFM's fund selection was fine and to re-confirm that the money should stay with the DFM?

It doesn't sound like the IFA is adding a lot of ongoing value unless the £60k is only one part of some overall bigger set of assets on which he is charging an ongoing service fee. It would seem that the value he can add is in making the up front decisions - the advice being given right now - rather than ongoing annually. Although, he noted that she didn't have a big enough pot of assets to deal with the DFM direct, so part of what he is giving, is access to that DFM.

Whether that DFM on a pot of only £60k is something that warrants a £300 'access fee' (changing each year, but expected to be increasing in real terms over time with the value of the pot) is debatable. It depends if the value-add from the DFM (after their own fee) is better than the IFA simply using the wide, whole of market choice of mainstream OEICs, UTs and ITs which are available to all.

Also, at £60k the discretionary fund manager may not be exercising much discretion at all. Perhaps at £100k or £200k or £1000k the discretionary manager is really making a lot more active choices where to move the money and why, with a material impact on the results in terms of £££. If she has a small amount of money just allocated into a few pots by the DFM, does she get the same level of enhancement to her returns? One would hope so, if that's what she's paying for, but it may turn out not to be the case.

Basically a DFM will probably not deal direct to the public for just 0.36% of £60k. The £200 a year is just not worth it, to deal with another customer account. However if it is part of a 'job lot' of work from a referring IFA, and the £200 will grow over time, they might take it on. This means you are able to access their allegedly excellent skills for 'only' 0.36%, and maybe those skills overlaid onto their proprietary funds will produce a return 0.4% or more better than if you'd bought an equivalent 'mainstream' public access portfolio. Or perhaps no better at all in outright performance, but better volatility, which you value.

But for you to get it, you're paying your £200 to them AND the £300 to the IFA for hooking you up. If the alleged outperformance was 0.4%, that's worth a 0.36% fee but not a 0.86% fee.

I guess you can view it as a 0.8%+ DFM fee, or a 0.8%+ IFA fee. £500 a year to a discretionary manager to take control of your portfolio is not outrageous IMHO. £500 a year for ongoing monitoring and servicing of a portfolio by an IFA is not outrageous IMHO. However, £500 of anything on a portfolio of £60,000 is quite a chunk of value that one of them needs to add before you break even.

Personally I wouldn't engage advisors at that level of annual costs. It's a sixth of a 5% gross return or a seventh of a 6% gross return or an eighth of a 7% gross return. But then I am happy to make my own detailed investment decisions on £60k. Sounds like others on the forum would be too. At £600k it might be a different answer. And none of us know what your wife knows, wants, needs or is comfortable with.

Mensch

Wow! Thanks for all the responses - much appreciated, and much food for thought.


Neither Fr Mensch nor myself have any kind of comparative experience in this field and she certainly won't be making any decisions based on what I, or any well-meaning contributors here, have to say but it does open up other options which she can explore at her leisure, as that money won't be available until she retires in December.


As I said earlier, I've put some money into a couple of global trackers recently. We'll wait and see if those give us any ideas about what to do.


Thanks again, everyone.

bowlhead99

Mensch wrote: »

...does open up other options which she can explore at her leisure, as that money won't be available until she retires in December.

And there is no hurry. Once the money is available in December it can presumably stay where it is, or sit in cash for a bit while decisions are made. She may have 40 years in which to invest and spend it. Or maybe just 10. The timescale, together with the return sought and the preference for income or growth and the volatility accepted is one of the factors that might favour one style of investing over another.

As I said earlier, I've put some money into a couple of global trackers recently. We'll wait and see if those give us any ideas about what to do.

Not to rain on your parade, but the return on a couple of global trackers over the next six or seven months should probably not affect your 10-40 year investment plan one iota.:)

Unless the return on them is massively hugely negative, in which case your choice of investment strategy may feel like it's been made less important by the fact that everything is dirt cheap, and as such any fool could make a reasonable return even without employing a DFM.

Though presumably the DFM would presumably still claim to offer a better prospective return by identifying suitable asset classes with which to ride the storm and gain from the recovery, so you still have to make choices.

kidmugsy

I recently read this somewhere, and thought it worth passing on to anyone who is not an experienced investor.


Don't invest in "low risk" investments and expect a high return: to get a high return you must expect to need to take some risk.

Don't invest in "high risk" investments and expect a high return, because the likelihood is that you'll panic at a market downturn, sell at the wrong time, and then be reluctant to re-invest. You'll thus get yourself a low return.

So you have to find some medium level of risk that suits your personality, age, and financial position, meaning probably that you will need to diversify your investments, and re-balance them from time to time.

What the OP, or rather his wife, needs to judge is whether those high charges would be justified by the help they bring in suitably diversifying and managing investments.

P.S. What constitutes a high or low return depends on the world's financial state: I'm still assuming that 3% p.a. real on equities might come to seem acceptably high for the next 20 or 30 years, and about 0% on bonds. Source: Credit Suisse a couple of years ago.

nrsql

Instead of global tracker try the argument with vanguard lifestyle funds.
Still might not have the distribution that the managed funds have but better than full equities. Just a matter of picking the equity proportion.

Then the issue is more whether the investor will be tempted to dabble or panic. I don't see that is more likely with a self invested fund than a managed service.

There is a lot to be said for taking an easy route though. It's easy to end up doing nothing if trying to consider too many options. Could try splitting the amount and self investing some.
My first investment was with m&g due to a big advertisement at a rail station. Maybe expensive but better than nothing (as it turns out) and all I had time for at the time.

bowlhead99

nrsql wrote: »

Then the issue is more whether the investor will be tempted to dabble or panic. I don't see that is more likely with a self invested fund than a managed service.

If it is managed and advised it is harder to dabble, and also there is someone on hand to talk you out of panicking. so I would think it more likely to do either of those things if you are self investing.

There is a lot to be said for taking an easy route though. It's easy to end up doing nothing if trying to consider too many options.

I tend to agree with that although they do seem to have time on their hands in which to make a reasoned decision after some time for some research and self-education, and with a tenacious husband it is unlikely that they will simply do nothing. If the £60k stays in its current investment option that might not be a bad thing anyway.

Could try splitting the amount and self investing some.

I think that's probably the worst of the options.

You can either DIY and save the £500 a year of advisory and discretionary investment management charges, or you can pay them and hope they are worth it.

If you take the middle ground of doing a bit of both, you will effectively be asking the IFA and manager to take £500 off you for now only managing £30,000 of assets instead of £60,000.

You are not going to get an advisor and a DFM to do any real work for only £100 a year each, so you would find that the percentage rates would inevitably go up if they were advising a much smaller account which had less likelihood of growing to a meaningful (to them) amount of assets over the next x years.