Pensions. Is an IFA really worth it?

fred246

Found it!
https://www.moneymarketing.co.uk/opinion/dennis-hall-why-were-reducing-portfolios-to-just-one-fund/

[Deleted User]

Prism said:

Deleted_User said:

Cus said:

Be great to see that chat forum you mentioned.  As discussed, it's just in your internet history.  Why don't you have a look?

I remember seeing on a passive investment fund manager forum how they have 100% proof that active investment always beats their passive funds but they didn't want anyone to find out and ruin their easy life. I don't have the link anymore 🙂

Good story, but mathematically impossible. By definition a passive fund performs as an average of all active investment plus the delta in fees which typically favours passive investments. Say, its 1% advantage in costs... Thats a lot. Every year there will be some active funds beating your passive fund but it will be a minority. Over longer periods of time there will be very few in this category. 

 

and even with passive investment many people are in and out of themes and regions trying to get some form of advantage 

You are describing active investment.

From my point of view:
-  there are specific complex situations involving large sums of money when using an advisor can be helpful
- in the vast majority of cases, retirement investments should be simple and quality information is readily available, sourced from the very top experts in the field. Understanding this information requires proficiency with numbers. It also requires one to be a responsible adult. 

- If one isnt a responsible person and requires hand-holding, then using IFA is the right thing to do. This should save exactly zero time. It would still be necessary to learn about investment risks and investment options.  IFAs incentives are not aligned with yours; they are rewarded based on their marketing skills. Being good at marketing does not make one   a good investor. 

Prism

Deleted_User said:

Prism said:

Deleted_User said:

Cus said:

Be great to see that chat forum you mentioned.  As discussed, it's just in your internet history.  Why don't you have a look?

I remember seeing on a passive investment fund manager forum how they have 100% proof that active investment always beats their passive funds but they didn't want anyone to find out and ruin their easy life. I don't have the link anymore 🙂

Good story, but mathematically impossible. By definition a passive fund performs as an average of all active investment plus the delta in fees which typically favours passive investments. Say, its 1% advantage in costs... Thats a lot. Every year there will be some active funds beating your passive fund but it will be a minority. Over longer periods of time there will be very few in this category. 

 

and even with passive investment many people are in and out of themes and regions trying to get some form of advantage 

You are describing active investment.

From my point of view:
-  there are specific complex situations involving large sums of money when using an advisor can be helpful
- in the vast majority of cases, retirement investments should be simple and quality information is readily available, sourced from the very top experts in the field. Understanding this information requires proficiency with numbers. It also requires one to be a responsible adult. 

- If one isnt a responsible person and requires hand-holding, then using IFA is the right thing to do. This should save exactly zero time. It would still be necessary to learn about investment risks and investment options.  IFAs incentives are not aligned with yours; they are rewarded based on their marketing skills. Being good at marketing does not make one   a good investor. 

I agree it is active and its too complex. And yet thats what I see a lot of people discussing. Which tech ETF to use, How much to allocate to gold, don't bother with a world tracker - an S&P ETF is best... etc

Possibly not help by the fact that Vanguard and the like promote the more complex arrangement of regional funds rather than a simpler approach

DT2001

fred246 said:

I was doing some research a week or so ago. I came across a discussion on single funds in an IFAs forum. The question was could you get everything you need from a single fund. They all sort of agreed you could. One of them pointed out that it would be bad for their business. They then all agreed they would never recommend single funds because it would be bad for their businesses. I wish I had bookmarked it.

I have read the article and some of the early comments. I get the impression that some thought it a good idea to reduce the number of funds and the writer of the article said his research was ongoing, they would work on a new charging schedule and it would allow him more time for clients planning. I think your interpretation isn’t quite spot on.
Have you written to Dennis Hall to see how his research is coming along as the article is 2 years old?

DT2001

fred246 said:

DT2001 said:

Ongoing  I do not choose to use my time researching. This is probably influenced by the fact that having worked out my strategy with my IFA’s help, I am happy that in retirement I can do what I plan to.

OK so you've worked your strategy out. Do you continue to pay year after year after year? IFAs can cost more in the long run because they insist on taking part of your wealth indefinitely.

They do not insist on taking part of my wealth unless I use their ongoing service.
Being self employed with 4 children my circumstances do seem to have the habit of changing. If I paid for one off advice (assuming it was every 2 to 3 years) would I pay more as presumably an IFA would have to start from scratch (to comply with regulations)?

BritishInvestor

Deleted_User said:

Prism said:

Deleted_User said:

Cus said:

Be great to see that chat forum you mentioned.  As discussed, it's just in your internet history.  Why don't you have a look?

I remember seeing on a passive investment fund manager forum how they have 100% proof that active investment always beats their passive funds but they didn't want anyone to find out and ruin their easy life. I don't have the link anymore 🙂

Good story, but mathematically impossible. By definition a passive fund performs as an average of all active investment plus the delta in fees which typically favours passive investments. Say, its 1% advantage in costs... Thats a lot. Every year there will be some active funds beating your passive fund but it will be a minority. Over longer periods of time there will be very few in this category. 

 

and even with passive investment many people are in and out of themes and regions trying to get some form of advantage 

You are describing active investment.

From my point of view:
-  there are specific complex situations involving large sums of money when using an advisor can be helpful
- in the vast majority of cases, retirement investments should be simple and quality information is readily available, sourced from the very top experts in the field. Understanding this information requires proficiency with numbers. It also requires one to be a responsible adult. 

- If one isnt a responsible person and requires hand-holding, then using IFA is the right thing to do. This should save exactly zero time. It would still be necessary to learn about investment risks and investment options.  IFAs incentives are not aligned with yours; they are rewarded based on their marketing skills. Being good at marketing does not make one   a good investor. 

"IFAs incentives are not aligned with yours; they are rewarded based on their marketing skills."
Not clear what you mean by this.

BritishInvestor

fred246 said:

Found it!
https://www.moneymarketing.co.uk/opinion/dennis-hall-why-were-reducing-portfolios-to-just-one-fund/

Dennis is a well respected financial planner and speaks a lot of sense. I don't tend to pay too much attention to the comments on articles such as these.

Cus

Nice one on finding the link, apologies for doubting you.  I don't agree with your interpretation though. However it did show me that getting the right IFA is key. I felt sorry for the clients of one of those commenters!

Malthusian

If I had to guess (and I do), Fred is referring to the comments underneath the article made by Harry Katz.

Katz is not an IFA and has no clients; he retired in 2015 (three years before the article), and at the risk of disrespecting a long-serving professional who made many clients happier, you can see why.

(There are several objective errors in Katz' comments - most notably the idea that 20 funds are more diversified than 1 - but people who've been retired for three years are allowed to lose arguments with currently working professionals over technical aspects of the job they've packed in. Nobody loses anything other than pride. If Katz had won the argument and the current IFA had lost, then you would feel sorry for the loser's clients.)