What will a financial adviser do for me?

Jon_W

mollycat wrote: »

Ok, thanks for the advice.

Good luck if/when you get round to investing.

:T
Thanks for your help.

Jon_W

bowlhead99 wrote: »

I haven't clicked the link (although it's a decent site) but if you go to vanguard UK's own website you can get the latest factsheet for their Lifestrategy 80 fund, which gives an overall summary of what it holds, and listing the fund names of the other Vanguard equity or bond funds into which it invests. Each of those funds into which it invests has in turn their own factsheet on the vanguard site, as well as a prospectus.

So as Dunstonh suggests, you can dig into more detail if you like, to work out the holdings as of the last month end. That can be part of your research. But it's a snapshot at a point in time and may change over time within the overall investment strategy they operate.

A bit more than that. The market capitalisation of world equity markets (looking at what is in "free float" and some minimum level of liquidity) which make up the major indexes would amount to $40 trillion plus, with the London stock exchange probably about 6%.

It would be a little less if you counted all the shares that are not in free float (e.g there are companies or share classes on the Shanghai or Shenzhen stock exchanges that can only bought by local Chinese investors).

So, 6% is a reasonable rule of thumb for UK's share of world listed equities (though it will move with the markets and was higher before our currency devalued compared to a basket of other world currencies over the last year). However, only the most aggressive UK investors would be happy following that logic and putting 94% of the equity part of their investment overseas by following an all-world tracker.

Vanguard's lifestrategy product line has 25% of its equities listed in the UK - although as Joe mentions, its UK holdings are weighted to the largest multinational companies in the UK FTSE index which gives a lot of non-UK assets and revenue streams from those businesses.

If you bought the "80% equities" version of the lifestrategy fund I]not that I'm recommending for or against, plenty of multi-asset funds are available and there's always the expensive IFA options[/I, then basically 25% (a quarter) of the 80% equities would come from the UK index, which works out at 20% of the overall fund.

Then the non-equities part of the fund (i.e. the part of the "80% equities" fund that isn't equities) there will also be some UK exposure and some non-UK exposure. In the non-equity part of a portfolio people are often happy to have significant UK exposure (such as property, government bonds or UK corporate bonds paying fixed interest) because it's supposed to be a more stable and less volatile component of the returns. Though some overseas component should also be held to provide diversification - different parts of the world experience different things at different times.

But again within non-equities, just as within equities, different individuals and different fund manager groups build portfolios in different ways because different people have different opinions.

Thanks again, BH. I suppose when it comes to the bonds part there are much lower diversification benefits with highly-rated foreign govt binds as they will give similar yields to UK ones but with an added currency risk.

Jon_W

JohnRo wrote: »

Which is why you never commit money not intended for long term investment, whatever happens. Unless you're gambling on a favourable short term outcome.

At the least, imho, you ought to have fully utilised your PSA in 'high' interest deposit accounts, then realistically you have a pool of cash available for all eventualities.

After that you can invest in relatively high risk investments like the higher equity level VLS offerings without losing sleep, assuming you're able to cope with the volatility.

The alternative is to feed the investment money into your chosen investment vehicle as an ongoing periodic contribution so that the risk is loaded towards the back end of the investment horizon, it'll possibly help to mitigate losses in the short term but will almost certainly stifle gains long term.


Each variant of the VLS range has both ACC and INC versions, so you choose the appropriate one depending on your requirement for income.

I had been considering an incremental investing process. Interesting, I never thought of periodically 'topping up' the investments as limiting gains longer-term. Thanks for your insight.

I will have a decent cash reserve in addition to the amount being invested so I'll start checking out the high(!) interest accounts.

dunstonh

Jon_W wrote: »

Thanks again, BH. I suppose when it comes to the bonds part there are much lower diversification benefits with highly-rated foreign govt binds as they will give similar yields to UK ones but with an added currency risk.

You can diversify in different types of bonds. Using that typical 1-10 scale, you can find bonds across 2-10. different risks, different potential

Jon_W

dunstonh wrote: »

You can diversify in different types of bonds. Using that typical 1-10 scale, you can find bonds across 2-10. different risks, different potential

Not sure I have the sophistry to pick a return-generating bonds fund!

One more IFA to meet (hopefully) and still going multi-asset fund as things are.

Yeah, I know, you told me so! But it would have been remiss of me to follow that advice without seeing what the alternative options are.

Jon_W

Had some further explanation of the fees:

1. Passive tracker portfolio - allowed to 'float' from allocations
Platform 0.37%
AMC 0.25%
Estimated transaction costs 0.42%
TOTAL: 1.04%

2. Passive tracker portfolio with fund management*
* includes daily monitoring, rebalancing and currency hedging
Platform 0.37%
AMC 0.75%
Estimated additional transaction costs 0.42%
TOTAL: 1.54%

3. Option 2 above but with ongoing service:
Platform 0.37%
AMC 0.75%
Estimated additional transaction costs 0.42%
Ongoing service charge 0.75%
TOTAL 2.29%

I won't be going for option 3, I wouldn't want any more than an occasional email and a meeting once a year at most.

dunstonh

Jon_W wrote: »

Had some further explanation of the fees:

1. Passive tracker portfolio - allowed to 'float' from allocations
Platform 0.37%
AMC 0.25%
Estimated transaction costs 0.42%
TOTAL: 1.04%

2. Passive tracker portfolio with fund management*
* includes daily monitoring, rebalancing and currency hedging
Platform 0.37%
AMC 0.75%
Estimated additional transaction costs 0.42%
TOTAL: 1.54%

3. Option 2 above but with ongoing service:
Platform 0.37%
AMC 0.75%
Estimated additional transaction costs 0.42%
Ongoing service charge 0.75%
TOTAL 2.29%

I won't be going for option 3, I wouldn't want any more than an occasional email and a meeting once a year at most.

The fees do not appear to add up.
There are three potential charges
1 - platform charge
2 - ongoing charges figure (fund)
3 - adviser ongoing charge

Options 1 and 2 on your list are transactional (so no ongoing adviser charge). This means there would be two sets of ongoing charges. platform charge and fund charge. But you list three. Option 3 on your list has adviser ongoing charge so there should be the three charges but you list 4.

Where do these Estimated additional transaction costs come from?

bowlhead99

dunstonh wrote: »

The fees do not appear to add up.
There are three potential charges
1 - platform charge
2 - ongoing charges figure (fund)
3 - adviser ongoing charge

Options 1 and 2 on your list are transactional (so no ongoing adviser charge). This means there would be two sets of ongoing charges. platform charge and fund charge. But you list three. Option 3 on your list has adviser ongoing charge so there should be the three charges but you list 4.

Where do these Estimated additional transaction costs come from?

My guesstimate is that they are simply providing a breakdown of the fund's "ongoing charges figure" (your number 2) in a more granular form.

i.e., the known percentage-based annual management fee on the one hand, and estimated additional costs borne by the fund on the other, to convert a 0.25% management fee into a 0.67% running cost.

Or: the AMC is equal to OCF because manager bears the normal components of running costs... while the disclosed "estimated transaction costs" are literally the costs inherent in the investment activities such as purchase and disposal of the underlying holdings which are incurred through buying and selling and portfolio churn (stamp duties, broker commissions etc) which get rolled up into the overall performance of the fund, but are traditionally excluded from OCF while still being something about which investors are curious, so they are disclosing them (as an estimate).

Either way, it looks like something ultimately borne by the investor, but clarity would be useful to compare like with like.

Jon, if version 2 is rebalanced to a target allocation for you, and the target allocation is kept up to date for your stated risk level over the course of the economic cycle, and your needs are not going to change over time... there doesn't seem a great deal of point in paying another £300 per year for ongoing servicing on your £40k portfolio. If you are already paying them to invest your new money into the plan at a rate of 4% on all new contributions (a rate that's pretty steep if the amounts are large), then you might think, what is left to pay for?

However, if the whole point of using an IFA is for you to be able to understand what is going on and get an ongoing annual meeting to discuss it because you are not confident selecting funds for yourself and understanding your options at different points in your investing life, perhaps £300 a year doesn't hurt - because it is providing that "few emails and a meeting" that you crave.

I'm pretty sure if I was the IFA I'd easily burn through £300-worth of time costs every year with you as my customer...

badger09

bowlhead99 wrote: »

I'm pretty sure if I was the IFA I'd easily burn through £300-worth of time costs every year with you as my customer...

If you were charging, you'd be burning through £300 time costs every day, let alone every year :rotfl:

dunstonh

My guesstimate is that they are simply providing a breakdown of the fund's "ongoing charges figure" (your number 2) in a more granular form.

I thought that may be it but the tracker figures seem very high if that was the case.

I'm pretty sure if I was the IFA I'd easily burn through £300-worth of time costs every year with you as my customer...

I'm pretty sure I would be recommending something like L&GMI given the investment size but would look to add contingency charging to cover unexpected workload