DIY or IFA?

dunstonh

Some of those funds have 1.5% and higher.

I havent looked but I would think most of them are under 1%.

Same for IFAs I think of most of the numbers I've seen here 0.5% would be as low as you'd find and 0.75% to 1% is more typical. .

0.5% is the dominant figure across the industry. 1% tends to be on smaller amounts and tapers downwards as the amounts get bigger. Obviously every firm can be different.

To reduce risk, reduce your equity level and increase bonds/property. Have a look at the Vanguard Lifestrategy funds with their mix of equities/bonds - maybe the VLS 40. Charges are 0.22%.

Our model portfolios outperform VLS40 and VLS60 after charges. Looking at the names in that spread, I would think that it has a good chance of outperforming the closest VLS.

Cost is a secondary concern. Investment selection is primary. On this site, too many treat cost as a primary concern and investment selection secondary.

Linton

BLB53 wrote: »

Yeah, I would definitely stick with your DIY approach and especially the low cost index funds.

I would imagine that if you compared the net returns after fees of the IFA, you would be well ahead. Do you really want to be paying an extra £1,100 + vat every year for a fancy portfolio of higher charging funds?

To reduce risk, reduce your equity level and increase bonds/property. Have a look at the Vanguard Lifestrategy funds with their mix of equities/bonds - maybe the VLS 40. Charges are 0.22%.

The objective for many retirees isnt being well ahead on performance, it's having a portfolio of acceptable risk that can reliably provide the required income in good times and bad. You cant do that effectively simply by choosing a VLSxx. The OP has improved on what VLS would do by using Strategic Bond funds rather than the fixed % of gilts etc provided by VLS. You need to adjust the risk/return ratios and time to maturity of the bonds you invest in according to market conditions, VLS cant make that judgement.

The choices made by the OP look sensible to me for a minimal maintenance portfolio that is still in the accumulation phase. However once there is a net outflow of money I think a review by an IFA could be helpful.

Looking at the IFA portfolio there seem to be too many funds to manage efficiently. Why 3 (or is it 4) Strategic Bond funds? 1 certainly, 2 perhaps, but 4? Some of the asset allocations seem unusual - why so little US? Perhaps if the list was structured with explanatory text it would be clearer.

EdGasket

dunstonh wrote: »

Cost is a secondary concern. Investment selection is primary. On this site, too many treat cost as a primary concern and investment selection secondary.

That's because this is a money-saving site. A saving on fees is 100% guaranteed saving whereas improved performance from using an IFA is not guaranteed at all; in fact some people do very poorly by using an IFA.

dunstonh

EdGasket wrote: »

That's because this is a money-saving site. A saving on fees is 100% guaranteed saving whereas improved performance from using an IFA is not guaranteed at all; in fact some people do very poorly by using an IFA.

And some people do very poorly going DIY.

The focus needs to be on structure and suitability. Saving 0.x% p.a. to invest in a way that is going to impact on your return by more than 0.x% p.a. is false economy.

Looking at the IFA portfolio there seem to be too many funds to manage efficiently. Why 3 (or is it 4) Strategic Bond funds? 1 certainly, 2 perhaps, but 4? Some of the asset allocations seem unusual - why so little US? Perhaps if the list was structured with explanatory text it would be clearer.

My guess, and its only that, is that they are using software that looks at the underlying assets rather than the sector of the fund. That is a common trend with adviser software nowadays. For example, the First State Global Listed Infrastructure fund has 51% in North America. So, it would put that 51% into the N America allocation. CF Woodford Equity Income has 11.19% NA too. All these chunks can add up. Personally, I try to use funds which have a high content in the sector they are in. However, you do have to use balancing funds sometimes to get that target asset allocation.

Artemis Strategic Bond has 29% UK Corp Bond, 43% global investment grade bond and 25% NA Equities. That sort of spread puts me off as what is NA Equities doing in a Strategic bond fund. So, I would tend to avoid that sort of fund when building the portfolio. However, another may use it if they are short in GIGB, NA equity and UKCB

That is not to say that there are some funds in that list that seem out of place. Or that I would personally use less funds. Although using more funds does not make it that much harder to manage for the individual as the software works whether it is one fund or twenty.

Linton

EdGasket wrote: »

That's because this is a money-saving site. A saving on fees is 100% guaranteed saving whereas improved performance from using an IFA is not guaranteed at all; in fact some people do very poorly by using an IFA.

This is a Savings & Investments forum. Net gain as a function of risk is what is important for Savings and Investments, not minimal cost. After all putting all your money in a bank account is even cheaper than DIY investing in trackers and it's guaranteed. Many people have done very poorly with DIY. DIY performance isnt guaranteed. And those who have done very poorly have probably done far worse than they would have done had they taken advice.

As people have said many times to sadly little effect: the reason to use an IFA is not to aim to achieve maximum possible performance but rather to get the performance you need to achieve your objectives without taking unnecessary or unacceptable risk.

Linton

dunstonh wrote: »

.....
That is not to say that there are some funds in that list that seem out of place. Or that I would personally use less funds. Although using more funds does not make it that much harder to manage for the individual as the software works whether it is one fund or twenty.

I was thinking of ongoing management - rebalancing, dealing with changes in fund strategies etc, just keeping aware of what the fund is doing. However if the software can do all of that as well I suppose it doesnt make much difference. But then do you get the danger that the IFA doesnt understand why particular funds were chosen and perhaps discarded at some time in the future?

dunstonh

However if the software can do all of that as well I suppose it doesnt make much difference.

Software handles most of the things but you still have to read the data. A lot of it is done by filtering to leave you with x number of funds that match what you want. Funds will drop off from that and appear on that. Reading the data on 10 funds is easier than reading the data on 20 funds. And if you select funds on the basis that they invest at over 9x% in the sector they are meant to be in, then you can structure the portfolio with less funds.

The bottom line is that investing is about opinion. There is no one right way. There are plenty of valid strategies and people will have very different opinions on whether a fund is suitable or not. However, there are bad ways to invest. Going 100% into a single sector. Fashion investing. No structure and picking random percentages to go into each sector. etc

Some people will focus on cost. Some will focus on potential. If you DIY, you decide for yourself. If you use an IFA then they will decide for you. However, an IFA will consider your preferences and build accordingly. So, if you are putting cost above potential then let the IFA know. The IFA will record your preferences on file and in their report and make a recommendation based on your preferences.

StellaN

dunstonh wrote: »

Our model portfolios outperform VLS40 and VLS60 after charges. Looking at the names in that spread, I would think that it has a good chance of outperforming the closest VLS.

Well your model portfolio's must be great and most people would be more than happy to pay for that advice especially because VLS60 in particular has done so well over the past 6 years?

I am personally still not sure about the IFA's list of funds as opposed to the OP's DIY selection. As BLB53 said the OP can reduce the equity in the All world Index Fund and add some safer less riskier options in bonds or property. I think she said she wanted a risk profile of 5 or 6/10 so she's not that far off already at 7/10?

I know its all personal but I agree with Linton why 4 Strategic Bonds? I'm not a fan of Abolute Return funds either and the jury is out on Woodford? The OP's HSBC Index Fund for me represents a better Global balance but who knows?

dunstonh

Well your model portfolio's must be great and most people would be more than happy to pay for that advice especially because VLS60 in particular has done so well over the past 6 years?

#

They are not great. There is no guarantee that it would continue. Indeed, the property segment in our portfolios have created a drag compared to VLS during parts of last year. There will be periods when the lack of property will hinder VLS. VLS is not the be all and end all. Different asset allocations will have periods they perform differently and one will be better than the other. We use a mixture of managed and passive and we tend to get the managed funds right more often than we get them wrong. You will always get some wrong (wrong as in underperforming - not wrong on suitability). Some managed funds stand out in some sectors. Other sectors may not have managed funds that you feel offer value and potential.

Take the similar L&GMI funds. They have had periods they outperformed VLS but property created a drag for them too.

Also, we have many millions in VLS funds and L&GMI as they was suitable for those particular clients rather than a bespoke portfolio. Many clients use us for the administration (as they dont want to do it), being a sounding board for plans and ideas, general chat about finances, forward planning for goals and objectives etc. The investment side is just a by product for their life goals. This section has a lot of posters who focus in depth in the investments in a way a normal consumer would not be interested in. They wouldnt dream of using an IFA for things like that. And if they can do that all themselves, they have no reason to use an IFA. IFA or DIY is like any other job in life. If you can DIY and do it well, then you can save money. However, if you DIY and make a pigs ear of it, it can cost you a lot more.

What an IFA brings is structure and process and software to analyse things to save you doing it. It doesnt mean you will make more or less or the same. The IFA saves you doing it if you dont want to do it or you feel you cant do it. A DIY investor doing a good job with their research who has a good understanding can do an equally good job as an IFA. Which brings us back to the thread question. DIY or IFA? The answer being either is fine depending on what you want.

I know its all personal but I agree with Linton why 4 Strategic Bonds? I'm not a fan of Abolute Return funds either and the jury is out on Woodford?

I agree on all those points.

Sally57

It is very interesting for me to read all your different views on this thread.

My friend has no interest in finance or investments whatsoever and that is why she uses an IFA. I would imagine it must be quite frustrating for him because apart from discussing her risk profile which they settled on a 6 she really doesn't want any other input and tells me she trusts her IFA and leaves the fund choices and asset allocation to him.

After reading the other posts I must admit I am thinking of carrying on with my DIY investing. I have taken some time to research some of the funds I didn't know about and there are others that I do and I have to say this portfolio wouldn't be my choice. However, that's why you employ an IFA to offer a tailor made portfolio to your own liking so its nothing personal regarding the IFA's choice for my friend (if I met with the IFA I am sure he would structure a portfolio more to my liking).

I'm too inexperienced an investor to know why this portfolio has a certain structure but I feel happier with what I have at the moment so I will just tweak it bring my risk profile down to 5/6 instead of 7.