Investment cost

thegentleway

dunstonh said:

Is 1.5% reasonable to implement £300k portfolio?

It is in the ballpark. Some will be cheaper. A lot will be more expensive.   (assuming this is a one off transaction with you then doing the future).

Thanks dunstonh.
I must admit I don't really get the advantage of going with IFA and Parmenion compared to putting my money in Vanguard SRI Global Stock Fund or iShares MSCI World SRI?

dunstonh

thegentleway said:

dunstonh said:

Is 1.5% reasonable to implement £300k portfolio?

It is in the ballpark. Some will be cheaper. A lot will be more expensive.   (assuming this is a one off transaction with you then doing the future).

Thanks dunstonh.
I must admit I don't really get the advantage of going with IFA and Parmenion compared to putting my money in Vanguard SRI Global Stock Fund or iShares MSCI World SRI?

Vanguard SRI is an off the shelf option which may or may not fit with your ethical position.  i.e. no filtering has taken place.

It is also high risk (you haven't mentioned if you are using other funds to bring the risk down or if you are happy with that risk level).

However, I have looked at Parmenion before and it didnt do much for me either.   It ticks all the suitability boxes and they provide a lot of glossy material but seemed to be aimed more for use by a wealth management style adviser rather than a general practitioner adviser.

it reminded me of why SJP gets so many signing up with them. 

bowlhead99

thegentleway said:

dunstonh said:

Is 1.5% reasonable to implement £300k portfolio?

It is in the ballpark. Some will be cheaper. A lot will be more expensive.   (assuming this is a one off transaction with you then doing the future).

Thanks dunstonh.
I must admit I don't really get the advantage of going with IFA and Parmenion compared to putting my money in Vanguard SRI Global Stock Fund or iShares MSCI World SRI?

With the two index funds you mentioned,

a) you would be invested 100% into global equities, of which 95% are listed on stockmarkets outside the UK (do you want £300k invested in a product that can drop 60% over the course of a year or two? most people don't);

b) you would be stuck with the methodologies used respectively by the FTSE developed world 'ex Controversies/Non-Renewable Energy/Vice Products/Weapons Index' (the Vanguard product) and MSCI SRI index (iShares product).  The screening done by FTSE or MSCI would be intended to get you exposure to companies with strong 'sustainability profiles' or subjectively 'good Environmental, Social and Governance ratings', while screening out companies whose products subjectively 'have negative social or environmental impacts' or which fail screenings for certain corporate values.

Those methodologies applied as screening on a somewhat simplistic market-capitalisation weighted index may give you some 'interesting' portfolio allocations which might not accord with your 'ethics' at all, if you are looking to give someone an ethical mandate to manage your money.  For example, the Vanguard SRI fund holds around 1830 stocks, but the top 10 of them make up 15% of its portfolio with the other 1820 make up the other 85%. Here's those top 10 companies:

Microsoft, Apple, Amazon, Alphabet (Google), Facebook, Nestle, Procter & Gamble, JP Morgan Chase, Visa, Berkshire Hathaway.

- Microsoft and Google have been fined billions by the EU over the years for anticompetitive practices - a year ago Alphabet was fined €1.5bn for abusive practices in online advertising, following €5bn in 2018 relating to licencing apps and what smartphone makers could do with operating systems, €2.7bn in 2017 re Google Shopping... And privacy advocates don't like the way they harvest customer information by skimming private emails hosted on their servers, together with GPS data to 'learn more about you'.

- Amazon has similar privacy complaints with its Alexa products, together with running traditional stores out of business, manipulating transfer pricing to avoid taxes and every so often there is some undercover expose about overworked warehouse staff who get fired if they need the toilet. On the subject of transfer pricing, the EC ruled that Apple should pay an extra €13bn in Irish taxes relating to a 10-year period of dodgy structuring. Apple have their own issues with undercover exposes, child labour in China etc.

- Facebook was fined $5bn last year for inappropriate sharing of users' personal information.

- Nestle have hardly been everyone's favourite coffee and kitkat manufacturer, boycotted by many for their part in the baby milk formula scandal in developing Africa, but perhaps they are clean now.

- JP Morgan lend money to all kinds of ethical and non-ethical businesses alike, while charging predatory fees to low income consumers and underserving poor communities. In 2018 they were fined $5bn by US treasury for contraventions of Iranian sanctions, weapons of mass destruction sanctions, Cuban assets control regulations, and facilitating transactions in breach of Syrian and narcotics sanctions. The same year they agreed to pay over $120m to the SEC for abuse of ADRs,  and millions to the Hong Kong regulator relating to anti moneylaundering failures. A couple of years before that, they were in trouble for hiring children of Chinese officials to do jobs in China, ending up with over $260m of fines under the foreign corrupt practices act. And two years before that, their bill from Madoff's fraudscheme was pretty high - $2 billion for failing to alert federal courts about the largest Ponzi scheme in US history;  a billion to settle criminal charges, millions to settle civil cases with victims, and millions to US Treasury department.

As I want to go and make some dinner, I won't dig out any bad stories about dirty secrets behind P&G, Visa or Berkshire's pretty exteriors - perhaps they deserve their positions of highest weighted equities in a Socially Responsible Investment fund ahead of all the other giant global consumer products manufacturers, credit and payments processors, and insurance conglomerates...

Of course, ethics are a personal thing. I couldn't tell you if Parmenion are any good, just that they talk the talk and have some options which may be better than a cheap tracker with a bit of arbitrary screening like the two you mentioned.   It's unlikely that an IFA would let you exclusively invest your £2-300k in an SRI equities tracker because a lot of people who like the idea of a cheap fund are not actually happy to put all their money in a cheap world SRI fund, due to the huge volatility from investing in a single asset class index.

thegentleway

dunstonh said:

Vanguard SRI is an off the shelf option which may or may not fit with your ethical position.  i.e. no filtering has taken place.

It is also high risk (you haven't mentioned if you are using other funds to bring the risk down or if you are happy with that risk level).

However, I have looked at Parmenion before and it didnt do much for me either.   It ticks all the suitability boxes and they provide a lot of glossy material but seemed to be aimed more for use by a wealth management style adviser rather than a general practitioner adviser.

it reminded me of why SJP gets so many signing up with them. 

Thanks dunstonh. My ethical position is to do the most good; i.e. reduce suffering, and increase wellbeing and lives.

Good point about other funds. I'm confortable with risk: IFA has recommended portfolio with 100% exposure to stock/equities. I'm happy with the volatility but I can't see how we are going to evade a global recession from Coronavirus/lockdown. Not really sure how to make asset allocation to make it recession proof.

What would a general practitioner adviser use instead? Don't really understand the problem with wealth management? I was under the impression high net worth individuals had access to better products/services that made more money with less risk?

thegentleway

bowlhead99 said:
do you want £300k invested in a product that can drop 60% over the course of a year or two?

Thanks for explaining bowlhead99; that's very helpful. Hope you enjoyed your dinner!
I can stomach a short term 60% drop. My only concern would be that a 60% drop in the first year would need 150% increase just to break even. My (probably naive) understanding is that whilst stock/equities are more volatile, in the long run you get higher returns. I'm fine with the volatility if I get higher returns. I would obviously prefer to invest lump sum at the bottom of market (as opposed to now during bull market and with everything pointing to the market being massively overvalued) but I can't time the market. However, it does seem to me like we are guaranteed to go into a recession, which normally means stock fall sharply...

bowlhead99

thegentleway said:
However, it does seem to me like we are guaranteed to go into a recession, which normally means stock fall sharply...

A recession relates to declining GDP or negative growth of an economy over a prolonged period, whereas stockmarket prices are a reflection of long term outlook and may be more driven by how things pan out relative to expectations of what will or might happen, rather than directly tracking the pure number of what did actually happen in an economy. If it seems to everyone that we are guaranteed to go into a recession then you can presume that stock prices already reflect that to an extent.

The fact that indexes are heavily weighted to certain giant companies will mean they are heavily influenced by those companies, but that doesn't mean that all the rest of the companies have held up well. For example in the UK our main market index is stuffed with large oil companies and banks/financials (Shell and Lloyds have halved in value since January), while in the US index the biggest players include suppliers of software solutions and cloud storage (microsoft), home delivery retail, cloud computing and media streaming (amazon), software and advertising (google), advertising-funded social networks (facebook), subscription-based media content (netflix) and so on - which have not halved in value.

So the US index has not fallen as far as the UK one, despite the US economy having millions of newly unemployed and furloughed people and a million plus cases of an incurable virus, which they haven't handled any better than we have. Apple still has a huge market value, which might look strange if we are expecting the US and global economy to take a downturn, but maybe people who can no longer spend $5000 on a family vacation to Europe because flights don't exist will be happy to spend $2000 on a couple of new iPhone contracts instead, and watch Apple TV+ when they are between jobs.

The fact that Amazon and Google have done OK for now and are propping up the index, is perhaps masking the fact that a lot of other companies within it which will do worse in an economic downturn have already had their prices fall. Delta airlines is now a $13bn company instead of the $40bn company it was in January - it's lost two thirds of its value just like British Airways (IAG). If you pick several thousand indivdual stocks and go and look them up on google you will see that the vast majority of them are lower than they were, many significantly so. So, when your investment manager is shopping for stocks and doesn't just allocate the money to the biggest things in the index (like he would if he were forced to use a simple FTSE or MSCI World or S&P500 tracker or global SRI index), he will be buying a lot of stuff whose prices have already fallen to account for the fact that we are already predicting a recession.  If he uses an index he will get a lot more weighting to Amazon and Microsoft and Google than a lot of other business types, but maybe those companies will prevail just fine in a recession. 

It's probably true that some businesses will not end up doing as well in a proper prolonged downturn as their share prices imply - recessions have never been good for traditional advertisers, and Facebook and Google get most of their money from people spending money to advertise their businesses, while Amazon earns money from consumer retail, which won't be ideal if consumers have less money in their pockets to indulge in home delivery of new consumer products. But fund managers will not only be buying the things which are expensive, they will look out for things that represent long term value too. 

The short answer is that yes, recessions and the threat of recessions are not good for stock prices BUT, everyone knows there will be recessionary conditions and/or economic disruption for a long while yet, and 'everyone' includes the people who participate in the stock market, so share prices constantly rise and fall to reflect expectations. I would not be too bullish at the moment but a further crash from current levels is not a fait accompli.  If you don't need the money for a very long time, and are not the sort of person to panic sell during a crash, I am sure you will do OK with a 100% equity allocation - but if you are more cautious, or curious whether you could 'grab a bargain' by having more cash on the sidelines to speculate in case you are right that the indexes will tank in value over the coming months or years, then that's your prerogative.

dunstonh

What would a general practitioner adviser use instead? Don't really understand the problem with wealth management?

This is very much a generalisation and there will be exceptions.....

Wealth management firms tend to place all their money on one platform and use the same discretionary investment management service for everyone.  DFMs add a layer of charges.   Whereas advisory does not.   Some IFAs will reduce their charge if you use a DFM as it takes investment management away from them.   However, others will not and you end up paying for making the adviser's job easier.   A lot of IFAs using single platform and one DFM have been told to stop referring to themselves as IFAs and use FA instead.   Others have voluntarily moved before they were told.

A lot of the platforms that wealth managers use require the adviser firm to place the bulk or all of their business on that platform.  Those platforms also tend to be more expensive than general practitioner platforms.  (Standard Life own Parmenion.  They also offer Standard Life Wrap (not available to advisers unless they commit to using it exclusively) and Standard Life Elevate (the platform aimed at GP IFAs as they put no restrictions in place).   If you have £200k, for example, Parmenion platform charge is   0.3%, Wrap is 0.35% and Elevate is 0.25%.    Parmenion and Wrap do more of the work and have extra tools to make the adviser's life easier.  Elevate barely has any tools that aid the adviser.    You can pretty much mirror that across the marketplace when you look at the platforms focusing on the GP IFA rather than the wealth management adviser.

General practitioner IFAs tend not to use DFMs or only use them when necessary.  They will use multiple platforms & providers and will use whole of market investments.  Usually buying in data like sector allocations and the due diligence and research for investment funds.    So, the IFA firm is covering the cost of those things (whereas the DFM does them on the wealth management and you pay for it).

I was under the impression high net worth individuals had access to better products/services that made more money with less risk?

High net worth individuals do not have access to better products as such.   There may be options that are more suitable for them compared to a lower value investor but access is much the same.  However, most of these are actually higher risk. Not lower. Charges are certainly lower with larger amounts of money.    

Some clients go for the extreme cashflow planning or modelling side of things.   Wealth managers tend to be more active in that sort of thing.   They will often say they prefer to focus on the planning and modelling side of things and leave the investments to others.   There is some merit in that argument as advisers are planners.  However, whilst IFAs are not investment managers, they are the ones making the investment fund selection (or choice of DFM). Not the micromanagement but the choice of how it is invested.  The consumer expects the IFA to make those decisions as historically that is how it has been.    The research and due diligence 10 years ago, let alone 20 or 30 years ago, is not a patch on what it is today.   Some will say they use a DFM as they cant do it themselves.  It is quite right that the vast majority of IFAs do not have the resources to have their own asset models and carry out the research and due diligence required by modern standards.  Hence why the choice nowadays generally is to either use a DFM or buy the research and due diligence.    GP IFAs would save a fortune in costs by using a DFM.  So, it's easy to see why some do it.   However, the ethics behind it (i.e. getting the client to pay for the adviser doing less work and reducing their costs) doesn't sit well with some. 

AnotherJoe

thegentleway said:

bowlhead99 said:
do you want £300k invested in a product that can drop 60% over the course of a year or two?

Thanks for explaining bowlhead99; that's very helpful. Hope you enjoyed your dinner!
I can stomach a short term 60% drop. My only concern would be that a 60% drop in the first year would need 150% increase just to break even. My (probably naive) understanding is that whilst stock/equities are more volatile, in the long run you get higher returns. I'm fine with the volatility if I get higher returns. I would obviously prefer to invest lump sum at the bottom of market (as opposed to now during bull market and with everything pointing to the market being massively overvalued) but I can't time the market. However, it does seem to me like we are guaranteed to go into a recession, which normally means stock fall sharply...

How often do we hear that here  "i cant time the market but.."

And that belief is factored into today's share prices. Its not a secret there's a recession coming  

Indeed much of the reason for the fall is people either thinking there will be a fall and getting out, or people thinking other people will think there will be a fall and will get out so they should get out also.

Might they fall more? Sure. But maybe there will be a vaccine or maybe we'll find ways to live with it and the market will rise from here. I dont know which of those will happen. 

Can you time the market ?  Yep, if you're very good or very lucky. I dont think I'm that good or lucky so i tend to stay in all the time. I do sometimes switch investments,  Ive just sold some property shares because i cant see them recovering on anywhere the same timescale as other investments and so switched into those. But I've not gone to cash (to be fair I've already got a fair bit of cash, but my investment portfolio stays 100% invested. My investment portfolio is basically the amount i could lose half of without sleepless nights or my retirement being nuked.

That level will differ for everyone. People who cant tolerate any losses will in the long term seriously damage their wealth. People who can tolerate some should invest within that level of risk and then stay as they are.

Just my 2c YMMV

thegentleway

dunstonh said:

Some clients go for the extreme cashflow planning or modelling side of things.   Wealth managers tend to be more active in that sort of thing.

Thank you for explaining dunstonh; that's very helpful. I do have a 96 page report with cash flow, net worth, etc.. for the next 60 years so it sounds like the IFA is more into wealth management. Can I access DFMs without an IFAs? Seems to be it would be more cost efficient to either invest directly into DFM or get a GP IFA.

thegentleway

AnotherJoe said:

How often do we hear that here  "i cant time the market but.."

I guess I know I can't time the market but I can't help but try! Probably the main reason I sought financial advise as I've been sitting on cash for ages waiting for right time to invest