Excessive or reasonable charges for managed SIPP?

[Deleted User]

Thrugelmir wrote: »

Which index though? Even when choosing an index that tracks a particular market there's different variants there of...........

Buffett isn't an average investor either. Having the assets of insurance companies to play with was something of an advantage. You become the market by virtue of the value of stock you trade in.

Plain vanilla indices with low MER. There are options, but the differences are small. Just try to stick to a consistent set of indices to avoid overlaps, e.g some systems count Korea as “developed” and other as “EM”, so if you mix and match you end up with either too much of Korea or non at all.

For example I use VTI for US, VWO for EM and VIU for developed outside N America (FTSE based), but there will be products from the likes of Blackrock which are just as good and just as cheap. MER on these 3 products varies from 4 bp to 12 bp to 23 bp.

I do use one factor based ETF (VBR) for 30% of my US allocation. It’s also dirt cheap. Probably redundant complexity but that’s how this was set up quite a while back.

For bonds I use ZAG because I am in Canada, but there will be something similar for Brits.

And I don’t trade, just keep buying more of the same to add to the underweight assets. My Google sheet sends me an email when dividends are deposited or anything is out of whack and needs to be rebalanced

redux

beamyup wrote: »

If so, please tell me how an IFA can do this. I mean - regularly beat the market year after year by e,g, 0.5% (on average) without taking any extra risk. What exactly do they invest in to make this happen? specific sectors? Value? Commodities? Good managed funds? IPOs? Derivatives? Forex? what?

Of course, I am aware some managed funds APPEAR to do this, but all the analysis shows that these funds come and go and you cannot reliably pick ones that will outperform in future.

What you seem to be saying is that everything is inevitably averaged out, and so extra charges must produce a worse result.

An index is made up of a cross section of companies. Some companies are better than others. Some fund managers pick mostly better companies than average. And if so, why would it be impossible for some advisers to pick better funds?

[Deleted User]

redux wrote: »

What you seem to be saying is that everything is inevitably averaged out, and so extra charges must produce a worse result.

An index is made up of a cross section of companies. Some companies are better than others. Some fund managers pick mostly better companies than average. And if so, why would it be impossible for some advisers to pick better funds?

Because with 2% charges between a fund and an advisor they are playing this game with a massive handicap. Also, please name fund managers who consistently outperformed an index over the last 20 years

AlanP_2

There is an awful lot of conflating Active v Passive and IFA v DIY in this thread.

Going DIY does not automatically mean using Passive options.

Going IFA does not automatically mean using Active options.

Please make your minds up what you are arguing about

Prism

beamyup wrote: »

I AM ONLY SAYING 1 THING:
Generally, an IFA is not going to be good at beating the market at any risk level. and then on top they are charging half a percent or more PA which is very significant in terms of the final value of the fund.

You are saying that you disagree with this statement I think?

I am not disagreeing with you. It would be hard for most people to reliably beat the market, DIY or IFA. The IFA has typically more knowledge and better data to help them but the fee does reduce the returns.
What I am saying is that the average DIY investor does much worse than the market because they have no real idea what they are doing, take too much risk and sell and buy at the wrong time. They don't do what is suggested in this thread which select a simple low cost investment strategy within their risk level and leave it alone.

So the IFA is there to help them get a better result than they would have on their own

Linton

beamyup wrote: »

I AM ONLY SAYING 1 THING:
Generally, an IFA is not going to be good at beating the market at any risk level. and then on top they are charging half a percent or more PA which is very significant in terms of the final value of the fund.

You are saying that you disagree with this statement I think?

......

I would say that your statement is partially true as I have seen academic evidence from the US which I cant identify now which showed that advisors did on average make sufficient difference to pay their own fees. Theoretically one should be able to marginally beat the market simply by not investing in long term dog funds, which most certainly do exist. And then there is the somewhat arguable question of what exactly is "The Market".



However the key point is that all this is, for most practical purposes, irrelevent. Without significant experience, your losses arising from judging the appropriate risk level and choosing appropriate investments are likely to be much higher. Inexperienced young investors may go into very high risk areas such as red-hot small company tips whilst older ones tend to be highly over-cautious if they do not understand the difference between volatility and losing all your money, and balancing these against the very high long term risk of inflation.


Appropriate risk is also very dependent on circumstances. 100% equity investment whilst accumulating a pension from long term stable employment is not particularly risky. Putting all your assets into either equity or safe bonds whilst in drawdown are both extremely risky.

It is in the identification and management of risk that an advisor should add major value, not in beating the market.

zagfles

Linton wrote: »

However the key point is that all this is, for most practical purposes, irrelevent. Without significant experience, your losses arising from judging the appropriate risk level and choosing appropriate investments are likely to be much higher. Inexperienced young investors may go into very high risk areas such as red-hot small company tips whilst older ones tend to be highly over-cautious if they do not understand the difference between volatility and losing all your money, and balancing these against the very high long term risk of inflation.

Why do you assume getting the risk level wrong will result in losses? It results in the wrong risk level, which is just as likely to result in profits rather than losses.

The understanding of risk is the issue. It's pointless an IFA asking about attitude to risk and basing investment strategy on that, which AFAIK most do, if the customer doesn't understand risk in the first place! As pointed out on another thread.

beamyup

Linton wrote: »

It is in the identification and management of risk that an advisor should add major value, not in beating the market.

Thank you Linton, I mostly agree with what you have said, especially the quote above.

I say "mostly" because I do not agree that it is "for most practical purposes, irrelevent." I think that many people believe that IFAs are there to beat the market, so clearing up that point and helping people understand what IFAs are for is useful.

I think some people justify to themselves that their IFA is worth that massive annual fee because they are able to advise ways to outperform, making the fee more than worth the cost.

Maybe IFAs should be under an obligation to set this out explicitly. and tell people that they probably won't get more returns with them than just buying a single low cost fund that matches their risk profile (as advised by the IFA) and holding that themselves long term in a SIPP with no IFA fees to pay.

Prism

zagfles wrote: »

Why do you assume getting the risk level wrong will result in losses? It results in the wrong risk level, which is just as likely to result in profits rather than losses.

The understanding of risk is the issue. It's pointless an IFA asking about attitude to risk and basing investment strategy on that, which AFAIK most do, if the customer doesn't understand risk in the first place! As pointed out on another thread.

What seems to happen is that DIY investors watch what is going on and then try and time the market by selling at the wrong time and buying again to late. They pick high % equity funds and then panic and sell after a correction. They pick high % bond funds missing years of growth. Last year there were lots of threads in march and december from DIY investors asking if they should sell everything and wait for the crash.

I imagine many people who use an IFA spend much less time looking at things and possibly purely putting their trust in someone else, even if that someone else underperforms a little, do ok by doing nothing different during those corrections and crashes.

A typical post from last year looks a bit like this..
OP: "just check my yearly review from IFA and I am down 5%!"
Helpful forum members: "That terrible, passive multi allocation fund equivalent is only down 4%"
What is missing is a nuch of the DIY other investors who are on -10%, but don't get involved
in the discussion

[Deleted User]

AlanP wrote: »

There is an awful lot of conflating Active v Passive and IFA v DIY in this thread.

Going DIY does not automatically mean using Passive options.

Going IFA does not automatically mean using Active options.

Please make your minds up what you are arguing about

A very good point. So let’s be clear:

1. Passive investing isn’t DIY. You are using ready-made products, a pre-assembled solution.

2. Passive investment is right for the vast majority of people, except those who are willing to spend a huge amount of time on research and have unusual psychological make up

3. IFAs tend to go active route, as the OP’s did. This is needed for them to justify rip-off annual fees. Passive investing takes very little effort once the initial research has been done.