Opinion on my annual statement of costs and charges

Cus

Hi all,

I have a pension managed by a wealth management firm and received my statement of annual charges for 2019.  I would really appreciate the opinion of the forum on whether these sound reasonable?  I like the firm and they do also invest directly in global individual equities for me, so not just your usual funds. They also do keep the portfolio refreshed, couple of adjustments, new investments, sells etc per month. The percentages are against the average value of the portfolio for 2019.  During the year the portfolio went up around 16%.   my risk profile is approx 60-65% equity.

Total portfolio costs and charges paid = 2.49% of portfolio average value.

This is made up of a section for the wealth management company costs and charges:

Ongoing charges (management and custody fees) = 0.99 %

Transaction costs (trade execution charges, FX charges, stamp duty) = 0.25 %

Tax (vat) = 0.17 %

Then another section for investment product costs and charges, not taken by my wealth management firm:

Ongoing charges (such as fund company management fees) = 0.86 %

Transaction charges (buying and selling of underlying assets in the fund) = 0.19 %

Ancillary service costs (incidental costs like performance fees) = 0.03%

So total of 2.49%

Seem fair?  I am conscious of the focus on how charges impact the compound interest effect over the years, but that's a trade off against the performance I guess.

Thanks for reading.

Albermarle

Seem fair?  I am conscious of the focus on how charges impact the compound interest effect over the years, but that's a trade off against the performance I guess.

During 2019 , most 60% equity type multi asset funds , would have grown by more than 16% .

Typical total cost from 0.25% to 0.6% depending on fund/platform. Of course your portfolio may have performed better ( or worse) in the recent downturn .

Probably the size of your fund means that investing in just one type of multi asset fund is not recommended but it would be cheaper for sure !

bowlhead99

Presuming that "... the portfolio went up by around 16%" means that your total return on the pot was 16% after the effect of all the charges, the fees are not outrageous because they have delivered the result you want.

Clearly, it's a lot more expensive than if you had just selected the funds and shares and bought them yourself, paying something similar to the ongoing product charges mentioned, with a small fraction of a percent (0.2% or less) for platform fees and dealing fees on top, without needing to pay the 1.x% for management and custody fees and transaction costs and vat. But the net result seems fine. 

As a comparator, the "Vanguard LifeStrategy 60% Equity" fund is an off the shelf mixed asset fund holding a variety of index trackers, using a fixed 60% of global equities with the remaining 40% in a mix of various bond indexes. It delivered 15.24% for calendar year 2019 and it would have cost you £375 as a platform fee to hold it in their SIPP or ISA wrapper.  They have an 80% version which gave 18.06% over the same time period (before the platform fee).

So, if alternative simple solutions gave a net return after fees of 15-18% for 60-80% equities, it wasn't unreasonable to pay higher fees to get 16% for a net return after fees from 60-65% equities.

Of course, outright total return after costs is only one aspect of performance, while there are other things to consider such as volatility (how much does the value swing up and down on the way to delivering the return).

And it's not at all impossible to use higher risk solutions to give better outright return for a given % of equities while markets are benign or really positive, but they may be exposed when markets are less stable or have a long period of negativity. One year is not really long enough to determine that the management firm is "earning their money" because investors don't want a solution for one year, they want it for a longer term than that.

Still if you have enough money to be able to afford to pay for the advice or the discretionary management they are offering, ultimately the exact percentage of fee is a secondary concern to "does the solution deliver an acceptable return suitable for your needs, and does it enable you to sleep easy at night".

I don't pay for advice or a DFM solution as I don't have enough money to justify it and generally know what I'm doing. Other people's circumstances will differ. Neither do I use the "LifeStrategy" fund which is only an example, not a recommendation.

Cus

Thanks both.

Just doing some comparisons against LifeStrategy funds you mention, seems like my 2019 gain of 16% ( net of fees) for my 65% equity portfolio is right in the range. (LifeStrategy 60% =15.24%, LifeStrategy 80% = 18.06%)

Albermarle - you say most were better than this, is that a feel or is there an index that shows the average of all the off the shelf multi asset funds based on equity share?

I've just checked the year to date values on the above.

LifeStrategy 60% is down -3.8%, and the LifeStrategy 80% is down -6.6%.  Thankfully my portfolio is up 2.1%, and I saw they were busy buying and selling in March so I guess that they have earnt their fees for the year.

Kind of makes sense when I think about it, supposed market 'experts' actitively managing the portfolio in times of volatility should give better returns that those multi asset funds. 

Bowlhead99 - for me, sleeping easy at night is a primary concern, however one of those factors to sleeping easier is knowing that the fees I pay are worth it and I that I shouldn't just do it all myself.

Albermarle

Maybe I was wrong to imply there was a big difference but another well known one and competitor to the Lifestrategy range  : HSBC global strategy Balanced went up 17% in 2019 and I have one in my employer pension , which is approx 55 % equities and it went up 16.6%. The latter costs 0.26% pa in total but of course your return of 16% is after all the 2.49% charges anyway .
However more to the point is that if your portfolio is really up 2% ytd , then it seems that they are earning their money , as most of these multi asset funds mentioned are down  4 to 6 % . 
I have some defensive funds /IT's and they are also up a little ytd but the quid pro quo is that  they have only produced moderate growth in recent years.

Albermarle

Out of interest does this company offer you a full financial advice service for their fees , or do they just manage the pension?
By a full service I mean such things as advice on all types of  taxation  , other non pension investments , taking family situation into account etc