Excessive or reasonable charges for managed SIPP?

beamyup

This thread has discussed the relative performance a lot but not the charges, and the long term impact of those charges.

For a £350k plus portfolio, Is 1% reasonable? is 1/2% reasonable?

What should be provided for that fee? just a model "maybe" under-performing portfolio they call "medium"I guess meaning medium risk? what else?

It would be good to know the service you should expect for having so much reduction in your pension (assuming investment of any fee saved).

Also - effort vs value for money..
How many hours PA should an IFA spend for a e.g. £3000 PA fee
How many of those hours are of direct benefit to the client? vs how many hours jumping through regulatory hoops with perhaps little direct benefit.

[Deleted User]

dunstonh wrote: »

That information is available for those that want it. However, you are saying they should provide it. There is no requirement for advisory firms to provide that information. So, saying they should provide it is incorrect. It gives the op the impression that they have not been given something that is mandatory to give out.



Whats wrong with the performance?

We dont have exact dates for 2016 as it was sometime in January. That month saw a large movement of nearly 6% for 80% equity. The OP would also have paid an initial charge in year 1. That would reduce the return.

Also, the portfolio has a yield focus. We dont know the reason why they did that. However, it does tend to reduce the risk levels down a bit but also the growth. Yield portfolios tend to perform better/worse in different parts of the cycle.

All investment decisions, whoever makes them, is based on opinion. I don't agree with some of the things in that portfolio and if you asked 100 people to build a portfolio of single sector funds you would get 100 different builds.



What do you call comparing 80% equity with 100% equity then?
You did say what it was but the OP isnt to know that its not comparing like for like.

I don’t know if the OP quoted money-weighted or time-weighted returns. To be meaningful for comparison purposes it has to be time-weighted. If so, it does not matter what was the exact sequence of his investments.

I provided a world stockmarket ETF returns for the same period because I believed it to be helpful. Tells a story. Good years or bad - OPs portfolio is underperforming an all stock portfolio. I didn’t know which fund provides 80/20 split, but that does not change a thing

The 80% stock portfolio quoted above tells the exact same story. As expected, it underperforms the 100% stock portfolio during good years but outperforms during bad years. Remarkable that OPs portfolio showed large underperformance in both cases.

[Deleted User]

You can obfuscate but the reality is that portfolios with charges like OPs underperform index funds long term, regardless of what is selected. And yeah, I do think that this particular portfolio is pretty bad.

[Deleted User]

beamyup wrote: »

This thread has discussed the relative performance a lot but not the charges, and the long term impact of those charges.

For a £350k plus portfolio, Is 1% reasonable? is 1/2% reasonable?

What should be provided for that fee? just a model "maybe" under-performing portfolio they call "medium"I guess meaning medium risk? what else?

It would be good to know the service you should expect for having so much reduction in your pension (assuming investment of any fee saved).

Also - effort vs value for money..
How many hours PA should an IFA spend for a e.g. £3000 PA fee
How many of those hours are of direct benefit to the client? vs how many hours jumping through regulatory hoops with perhaps little direct benefit.

1% = 3.5k every single year, whether portfolio goes up or down. 1% is a significant proportion of expected returns. 1% = over $100k as portfolio grows over the next 20 years (assuming its allowed). 1% is 10 times more in charges than could be achieved with very little effort by reading a few books.

0.5% would be more tolerable if someone needs hand holding. Some do.

fronty

Evening gents, lots of lively discussion and debate going on, good to see! :-)

There's been some great nuggets of advice in here. I looked into the Vanguard funds and also stumbled across Monevator, who talks about these LifeStrategy funds (sorry can't post the link).

My IFA assessed me as having a medium attitude to risk. So not sure whether I'd be up for the 60% or 80% equity fund. I'm leaning to 80% at the moment. However even the 60% equity fund beats the 3 years of figures I've got for my pension. I checked the 80% fund on trustnet and it's 5 year performance within it's sector currently ranks it 8th out of 158 funds. Performance seems pretty solid for something you can set and forget and with only a 0.22% annual charge it's very tempting.

I see that the charges on an II SIPP are incredibly low, only £10/month and £1 per trade if investing monthly.

To be honest it all sounds like a bit of a no-brainer. I've emailed my IFA and asked if there are any exit fees if I transfer out. I feel pretty annoyed that I've been paying them approx. £3,600/pa to get worse performance than something that is so cheap and simple, I just can't justify staying with them. I still have a good 10-15 years investment horizon before I retire, and the thought of all that money not being invested fills me with horror.

I'm glad I checked all this out now rather than just leaving it. I still need to do a bit more research, I'm not sure if I should dump the whole £360K into that one fund or find a few others to complement it. I like technology stocks (I work in IT) so might stick a few % in a technology focused fund, although the 80% Vanguard fund already has 9.9% in IT, so guess it's not really necessary to do anything separate. It just feels odd having the whole lot in a single fund, something I have never done in the past. Guess it's just about changing my mindset.

I'll go back over the replies and see if there's anything I've missed.

Cheers.

dunstonh

My IFA assessed me as having a medium attitude to risk. So not sure whether I'd be up for the 60% or 80% equity fund. I'm leaning to 80% at the moment. However even the 60% equity fund beats the 3 years of figures I've got for my pension

If you look at the average UK consumer, then 40% equity is more typical.

Looking at past performance of the VLS funds is not helpful as they started after the credit crunch. Look at similar funds that invested through the credit crunch and you get a much better idea of the loss potential.

I checked the 80% fund on trustnet and it's 5 year performance within it's sector currently ranks it 8th out of 158 funds. Performance seems pretty solid for something you can set and forget and with only a 0.22% annual charge it's very tempting.

A growth period and the sector is it in is the 40-85% share sector. So, by default, the funds with the most equity content will be at the top end in a growth period. VLS60, for example, is in the same sector but not comparable You should totally ignore sector positions when loiking at the mixed equity sectors. A few years back, a ratings agency looked at the 40-85% sector using a 1-10 risk scale and fund that sector contained funds ranging from risk 3 to 8.

A consistently below sector average returning fund could actually be a better solution than a top performing fund.

Performance seems pretty solid for something you can set and forget and with only a 0.22% annual charge it's very tempting.

Are you happy to accept your fund value dropping around 35-40% periodically? That is your £350k dropping by £140,000 to £210,000?

cfw1994

fronty wrote: »

(snip)
here's an extract from their (quite lengthy) reply:

Quote:
The charges are as follows;
- PFM Associates Wealth Management Service – 1% per annum based on the fund value and is paid monthly
- Standard Life Platform Charge – Based on the current value this is 0.35% per annum paid monthly

(snip)

I think I see the problem here!

“Wealth Management Service”
I would run a mile from any company offering me that nowadays. I remain firmly of the belief it is not my wealth they are interested in managing :rotfl:

I only half say that in jest....
It sounds like you are checking into moving it out. The numbers, to my inexperienced eye, look like they are taking the proverbial!

dunstonh wrote: »

If you look at the average UK consumer, then 40% equity is more typical.
(snip)
A consistently below sector average returning fund could actually be a better solution than a top performing fund.

Are you happy to accept your fund value dropping around 35-40% periodically? That is your £350k dropping by £140,000 to £210,000?

I’m genuinely curious:
Only 40% equity?
I’m clearly more risky than most, although my spread is perhaps more global than some (perhaps more US biased, but then much tech growth etc has been from there). It does feel like IFAs ought to be able to help produce decent returns for their customers.

Given the choice, I’d personally chose a fund that is consistently in the top 1st or 2nd quartile to one languishing in 4th or 3rd. Why would the latter be better?

Finally: when did funds last drop by 35-40%? and how long did they take to recover?

fronty

dunstonh wrote: »

Are you happy to accept your fund value dropping around 35-40% periodically? That is your £350k dropping by £140,000 to £210,000?

Well that is the $64m question isn't it? I wouldn't be "happy" about it, but given my investment horizon I could use a dip like that as a buying opportunity.

I'd look to move into "safer" asset classes as I get closer to retirement, if I went for a VLS fund it looks like a simple matter to switch into lower equity % funds.

This all strikes me as being quite familiar, my first pension was (mis)sold to me by Barclays, during the pension review they determined I should have joined a company scheme, so I was awarded some compensation, but regardless, I remember back then the fund was called "Barclays Balanced Managed" or something. These mixed asset funds sound very similar to the old balanced managed funds, but with much lower charges. Almost feels like I'm going backwards... :-)

fronty

cfw1994 wrote: »

Finally: when did funds last drop by 35-40%? and how long did they take to recover?

I did actually see those kinds of drops in some of the graphs around 2008-2009 timeframe, but my pension back then only suffered around 11% drop and had recouped those losses and was positive in early 2010 (this was back when I was managing my SIPP myself). The graphs seem to indicate a lot of funds recovered all their losses within 2 years, and if you had been drip feeding at the time (I was) you will have picked up some bargains (I had a massive growth spurt in 2010 and 2011 - my pension gained nearly 100K in just those two years alone!).

There's been a few dips since, but nothing like as bad as 2008/2009, and they have generally recovered quite quickly, e.g Q4 2018 was pretty bad but if you looked at the figures now a lot has recovered (including my portfolio).

I just don't have the time to do all the research any more - already I have spent several evenings this week stuck on my laptop which is impacting on family time. So I'm hoping to set something up and just forget about it for a while.

[Deleted User]

I am not sure 2008 is a particularly good indicator of a worst case scenario. 1930s or 1970s were much tougher. We can’t relive that experience but reading books by people who did is helpful to get appreciation of what it feels like.

Terms like “medium tolerance to risk” are not particularly meaningful. Most people tend to feel good about their tolerance during good times and iffy after a downturn. Anyway, the real risk isn’t a 40% drop when you are 30 (which can easily happen with a balanced portfolio). Like Fronty said, that’s a good thing. The real risk is not having enough money when you are old. For a 30-year old bonds are riskier than shares - they can easily be devastated by unexpected inflation while the upside is next to nothing. Shares are really good at handling inflation. The equation changes when one approaches retirement.

I found a series of books by Bernstein, such as “Deep Risk” and books about 1930s really helpful to understanding risk. Questions such as “how would you feel about an X percent loss” are really quite unhelpful. Nobody on earth feels good about losing money, but that’s not a good reason to avoid stocks.