Pensioners are ill-advised 53pc of the time

Linton

capital0ne wrote: »

"Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett

very true

Very foolish. Even Warren Buffet invests in a range of industries. Amateur investors who don’t diversify widely tend to be those who don’t know that they don’t understand what they are doing, and the professionals are doing it with other people’s money.

bostonerimus

Linton wrote: »

I think we will find that the really serious problems will be due to foolish diy investing rather than to IFA fees. Hopefully an IFA produced financial plan will nclude the effect of fees.

An IFA plan will certainly include fees....thank you very much. The best chance someone has for financial success is to implement simple and sensible DIY investing strategies that keep fees low. In drawdown annual IFA fees are a boat anchor on income, There will surely be foolish DIY people who spent everything and also examples of miss-selling and poor professional advice. I'm just glad I pay <0.1% fees on my investments rather than the 1% or 2% that seems to be ok with so many UK investors,

Linton

bostonerimus wrote: »

An IFA plan will certainly include fees....thank you very much. The best chance someone has for financial success is to implement simple and sensible DIY investing strategies that keep fees low. In drawdown annual IFA fees are a boat anchor on income, There will surely be foolish DIY people who spent everything and also examples of miss-selling and poor professional advice. I'm just glad I pay <0.1% fees on my investments rather than the 1% or 2% that seems to be ok with so many UK investors,

The problem is that Joe Public doesnt know what a "simple and sensible" diy strategy is. Someone with no experience and no advice being presented with more money that they have ever seen in their life is likely to seriously underperform because of over-cautious investing or invest way beyond their risk acceptance leading to panic selling in the bad times. They may also have little idea of what a sensible drawdown rate is especially if they seriously under-estimate their life expectancy as many newbies to this forum seem to do. The potential costs of these are far higher than the cost of advice.

It is interesting to see that over the past five years the difference between VLS60 and VLS80 is about 2%/year. So making the choice between these 2 pretty similar funds has been about twice as important for one's future wealth as deciding whether to use an IFA or not. Choice of investments is much more important than the cost of advice.

bostonerimus

Linton wrote: »

It is interesting to see that over the past five years the difference between VLS60 and VLS80 is about 2%/year. So making the choice between these 2 pretty similar funds has been about twice as important for one's future wealth as deciding whether to use an IFA or not. Choice of investments is much more important than the cost of advice.

Investing money takes a little effort, but if "Joe Public" is willing to make that small effort they can be successful. Most people simply don't need to spend money on an IFA, but unfortunately in the UK (and to a slightly lesser extent in the US) the financial industry promotes this aura of difficulty around investing. I certainly blame entrenched attitudes in the financial industries, but I also blame the sheep like character of the UK investing public that seem to be fine with the status quo of them being sold expensive advice that they don't really need.

TBC15

Linton wrote: »

Very foolish. Even Warren Buffet invests in a range of industries. Amateur investors who don’t diversify widely tend to be those who don’t know that they don’t understand what they are doing, and the professionals are doing it with other people’s money.

Foolish advice for the individual not willing to put in the spade work, probably yes. Foolish for the likes of Warren buffet/Terry Smith ?

k6chris

Linton wrote: »

It is interesting to see that over the past five years the difference between VLS60 and VLS80 is about 2%/year. So making the choice between these 2 pretty similar funds has been about twice as important for one's future wealth as deciding whether to use an IFA or not. Choice of investments is much more important than the cost of advice.

With hindsight yes, however it's not the case that IFAs had got the secret memo about how equities would perform during the last 12 months and so could make such a call. If you use Morningstar (or some such) to compare various funds, you will see just how high the correlation of performance is, both in magnitude and profile. Yes some will end up outperforming others, but the questions is does the IFA fee help pick more of those winners and if so, does the additional winning performance cover the incremental cost??

To my mind a good IFA provides 3 things - a wider knowledge of investment options than their client may have, experience of creating a portfolio of investemens to match risks with client risk tolerance and the outsourcing of the final investement decision, giving the client the ability to detatch negative outcomes from their personal decision making process. This last point is arguably the biggest for many people, where 'being wrong' is very difficult to handle, compared to it being someone else's fault. (I spend my life in an almost permanent state of being wrong, so not a problem for me!)

Linton

TBC15 wrote: »

Foolish advice for the individual not willing to put in the spade work, probably yes. Foolish for the likes of Warren buffet/Terry Smith ?

Both WB and TS can afford to hire people to undertake extensive analysis of company finances. WB has the power to change his companies' strategy and management should he want.

I wonder if Terry Smith or Warren Buffet personally only invest in their own funds? Individual niche funds focus on a specific area, that is what they are mandated to do. They arent sold as a complete investment solution.

Linton

k6chris wrote: »

With hindsight yes, however it's not the case that IFAs had got the secret memo about how equities would perform during the last 12 months and so could make such a call. If you use Morningstar (or some such) to compare various funds, you will see just how high the correlation of performance is, both in magnitude and profile. Yes some will end up outperforming others, but the questions is does the IFA fee help pick more of those winners and if so, does the additional winning performance cover the incremental cost??

To my mind a good IFA provides 3 things - a wider knowledge of investment options than their client may have, experience of creating a portfolio of investemens to match risks with client risk tolerance and the outsourcing of the final investement decision, giving the client the ability to detatch negative outcomes from their personal decision making process. This last point is arguably the biggest for many people, where 'being wrong' is very difficult to handle, compared to it being someone else's fault. (I spend my life in an almost permanent state of being wrong, so not a problem for me!)

The reason for the choice of VLS60 and VLS80 in the example was that it isnt a matter of luck whether one outperforms the other, it's a relatively minor difference in strategy. In a sense one is designed to outperform the other over the long term at the cost of higher volatility. I dont understand why the people who are fixated on 1% going to an IFA aren't much more concerned about these sort of choices which have a significantly larger impact. However in discussions on the VLS funds the exact % equity you use seems to be seen as simply a marginal matter of personal preference, the fact that charges are low in both is seen as far more important.

An IFA should be able to provide an appropriate match between risk and return for the client and be able to explain the benefits and downsides of the various options. Getting this particular aspect right on its own could easily justify the cost without any need for magical powers in choice of funds.

bostonerimus

Linton wrote: »

The reason for the choice of VLS60 and VLS80 in the example was that it isnt a matter of luck whether one outperforms the other, it's a relatively minor difference in strategy. In a sense one is designed to outperform the other over the long term at the cost of higher volatility. I dont understand why the people who are fixated on 1% going to an IFA aren't much more concerned about these sort of choices which have a significantly larger impact. However in discussions on the VLS funds the exact % equity you use seems to be seen as simply a marginal matter of personal preference, the fact that charges are low in both is seen as far more important.

An IFA should be able to provide an appropriate match between risk and return for the client and be able to explain the benefits and downsides of the various options. Getting this particular aspect right on its own could easily justify the cost without any need for magical powers in choice of funds.

1% in fees is enormous when taking income......and you don't need to spend it to choose VLS80 over VLS60 if you want the chance of a bit more return for a bit more risk.

badmemory

To go back to the original 53% badly advised, this is, from a normal person's point of view, frankly terrifying. How on earth are we supposed to make decisions with a headline like this? That the people we are trusting with our futures (well financial futures) are getting it wrong more than half the time. How do we know if they are getting it wrong or getting it wrong for us but right for them. Are we going back to the lack of trust issues from a few years ago? Or are they still allowing FAs to still make recommendations which should only be acceptable from IFAs.