Excessive or reasonable charges for managed SIPP?

fronty

Lokolo wrote: »

- OP, you should ignore all the Vanguard and Index Fund information for now. This is further along the line.

I'm interested why you say this?

The "problem" I am having is that the Vanguard funds, even the VLS60 fund (which I think is a better comparison than VLS80) has outperformed my portfolio, but I am paying an IFA 1% a year to actively manage it and the percentage appears to be uncapped.

I wouldn't mind so much if they were delivering superior performance or the fee % was lower, but they aren't AFAIK, so it makes me wonder why I don't just put the money into a VLS60 and save myself thousands of pounds in fees every year? Or put half in VLS40 and half in VLS60 to give me a 50-50 split between equities and bonds/fixed interest (I will be 50 this year).

I don't really use my IFA for anything other portfolio management.

menziesthefish

I don't really use my IFA for anything other portfolio management.

In which case I would say there is very little reason for you not to take the DIY route and use e.g a VLS fund for a fraction of the price. Professional fund managers regularly fail to out-perform the market consistently, so I wouldn't expect an IFA to do so. As long as your risk appetite is suitably represented, the markets will take care of the rest.

It is arguably only when you get to the stage of needing to draw benefits from the pension that the DIY route becomes far more of a risk to all but the most experienced investor. That's the point at which the input from an experienced professional can add true value, especially as part of wider retirement funding discussion.

Lokolo

fronty wrote: »

I'm interested why you say this?

The "problem" I am having is that the Vanguard funds, even the VLS60 fund (which I think is a better comparison than VLS80) has outperformed my portfolio, but I am paying an IFA 1% a year to actively manage it and the percentage appears to be uncapped.

I wouldn't mind so much if they were delivering superior performance or the fee % was lower, but they aren't AFAIK, so it makes me wonder why I don't just put the money into a VLS60 and save myself thousands of pounds in fees every year? Or put half in VLS40 and half in VLS60 to give me a 50-50 split between equities and bonds/fixed interest (I will be 50 this year).

I don't really use my IFA for anything other portfolio management.

So does your portfolio have the same objectives as the VLS60 fund?

If I came on and said "invest in Netflix stocks as it's done so much better than my FTSE 100 tracker" what would you say?

By all means you can shove it all in VLS60. I couldn't care less. But it's incredibly naïve to invest in something you don't understand.

menziesthefish

So does your portfolio have the same objectives as the VLS60 fund?

Looks like it. Broadly-speaking.

Based on the portfolio presented by the OP, both are looking to achieve long-term capital growth in line with a what is considered to be a 'medium' risk profile.

Lokolo

menziesthefish wrote: »

Looks like it. Broadly-speaking.

Based on the portfolio presented by the OP, both are looking to achieve long-term capital growth in line with a what is considered to be a 'medium' risk profile.

There are quite a few differences.

The OPs portfolio has only 20% bonds compared to the 40% on the VLS60. 10% property for the OP vs 0% for VLS60, 20% vs 15% UK etc.

I think risk wise I'd say the OPs is more adventurous. But there are quite a few different asset allocation differences. Both are an active choice of asset allocation.

I don't believe comparing performance of the VLS Vs the OPs fund useful. At the end of the day, someone has decided the asset allocation. One will always end up better than the other, there's still a human decision in there. I'd be more interested in an index portfolio of the same assets as the OPs portfolio. That would be a better comparison.

However I do agree about keeping costs low if possible.

[Deleted User]

menziesthefish wrote: »

Personally, I would be pretty happy with a 7%+ average annual return (I presume net of all fees?) over the last 3 years.


This is not correct. The fees you pay will be a percentage of the investment value, so if the investment value drops so will the monetary value of the fees you pay.

1. 7% in the last 3 years with the pound dropping 10% vs $ (I think) isn’t great, to put it mildly. This is major underperformance vs a single multi asset investment with the same percentage of bonds.

2. Your portfolio is 350k. It drops 10k in a rising market. Your IFA achieved a loss for you. He still gets 3,400. Ok, it’s 100 quid less than 3500, but that’s neither here nor there. He is getting paid handsomely regardless of whether he does a good job or a terrible one.

[Deleted User]

- I saw another post recommending 3-4 ETFs for a portfolio. I wouldn't recommend this, if you want to limit the number of investments, then multi asset ones would be a good start. I currently have 7 and would increase to 8 or 9 to get some exposure to other asset classes.

I wasn’t recommending 3-4 ETFs. That’s what I am using that is all. Fairly typical for a couch potato portfolio. I would certainly not recommend 8 or 9. Why on earth when you could cover stocks and bonds from all over the world with a single fund? Simple is better than complex.

There are 3 reasons I have more than 1 ETF:

1. when I built my portfolio multi-asset wasn’t available.
2. Tax efficiency and a bit more flexibility
3. It’s a little cheaper, but this wouldn’t be good a reason by itself

[Deleted User]

- I saw a post in this thread saying you only need to spend 4 hours looking at your portfolio a year. This is bordering on ridiculous. You do not need to spend 4 hours a week, but you do need to spend at least a couple of days (a weekend) reviewing your portfolio each year. Rebalancing (again, you need to know what this is).

In general, the less time people spend, the better. Rebalancing takes less than an hour for me on very rare occasions it is actually required (once every 5 years or so). With a single fund op is thinking about, rebalancing isn’t required at all.

Lokolo

Deleted_User wrote: »

I wasn’t recommending 3-4 ETFs. That’s what I am using that is all. Fairly typical for a couch potato portfolio. I would certainly not recommend 8 or 9. Why on earth when you could cover stocks and bonds from all over the world with a single fund? Simple is better than complex.

I decided my asset allocation before choosing my funds. In order to match my asset allocation I required 7 different funds. For reference this is my asset allocation (and I have no idea how to format on MSE even though I've posted thousands of times!)

UK Large Cap 14%
UK Small Cap 12%
Europe ex UK 20%
US All Cap 26%
Asia inc Jpn 10%
Emerging Markets 13%
Tech 5%

I suspect I could get the UK Large and Small cap in one fund, and maybe include the Europe as well. But overall it's fine for me.

Deleted_User wrote: »

In general, the less time people spend, the better. Rebalancing takes less than an hour for me on very rare occasions it is actually required (once every 5 years or so). With a single fund op is thinking about, rebalancing isn’t required at all.

I can see why you only rebalance every 5 years with only 3-4 ETFs, I'd be interested to know your asset allocation.

I think the OP putting £350k in one fund wouldn't be advisable unless it is a multi asset fund. And even then I'd have to seriously questioning it.

menziesthefish

He is getting paid handsomely

That is purely subjective and can only be determined by the OP. It's a matter of 'value' rather than pounds & pence.

regardless of whether he does a good job or a terrible one.

Again, this is purely subjective. How do you measure good or bad? Based on your other comments you seem to be suggesting that the IFA's only role is to consistently match or beat a given benchmark and that is the primary determinant of what you would consider 'success'. Given no-one can do this consistently I doubt any IFA would be willing to be measured on that basis - unless they advertise themselves as investment managers, in which case more the fool them!

I don't disagree that the OP could have achieved better returns for less cost elsewhere or taking the DIY approach, but he could equally have been charged an awful lot more and achieved far lower returns through a rogue IFA or poor DIY decisions. At the end of the day a 1% charge by the IFA is not 'excessive' IMO, which is the original question.