Pensions. Is an IFA really worth it?

BritishInvestor

Linton said:

BritishInvestor said:

Linton said:

BritishInvestor said:

cfw1994 said:

It is very easy to suggest “what if your Vanguard doesn’t manage to do as well as an IFA could?” with a knowing wink, suggesting IFAs will always “beat the market”,whereas the majority probably won’t.

I'm always interested to see examples of portfolios that "beat the market" given that I have visibility of a large number of offerings from numerous providers. 
The latest fad is to have a concentrated portfolio loaded with US large-cap/tech stocks, and as these tended to perform reasonably well in the recent downturn, investors have taken this as a cue that it's the holy grail, great returns with limited downside. 

1) Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening.

It seems to be me that people are missing the whole point of serious investing.  "Beating the market" is irrelevent.  What is important is to achieve an objective both regarding time and return,  That requires control of the risk level and returns of your investments. Any IFAs who focus on beating the market are simply not doing the job they are paid for.  Anyone who goes to an IFA with that aim is going to be disappointed, though perhaps the IFA would get them to see the wider picture assuming he/she  was willing to take them on in the first place.

The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?  How do I compare my returns with "THE market"? If I were able to put together a set of trackers that held the same allocation presumably the returns would  be very similar. What does that prove?

"Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening."
1)I haven't but I'm not sure what you could glean out of 3 years worth of performance.

"The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?"

The questions is how best to benchmark the returns. But that is the point I was making - holding a concentrated basket of US tech/growth stocks is not "beating the market".

"What does that prove?"
2) Once you benchmark appropriately, supposed alpha delivered by active fund managers tends to disappear?

3) (BTW I think we are mainly in agreement - be wary of someone focusing on "market-beating" returns).

1) You have to start somewhere.
2) Err either no or irrelevent.  The main issue for me is what funds are available.  If an index fund is not available then how an active fund would perform against it is irrelevent. Thanks to most index funds being based on market weighting  and their absence in some sectors getting the asset allocation one may want can be very difficult with passive funds.  In addition I see no evidence that market weighting provides optimal returns.

If you regard alpha as something in addition to what the underlying shares do, then yes I would agree that a fund manager cannot add anything in the very long term, trading does not help.  However a fund manager can certainly provide superior short/medium term returns by appropriate asset allocation within their overall remit which could be seen as choosing precisely which market to be in.  Also In lesser researched areas such as small companies and EM, fund managers with local or sector knowledge can usefully avoid some shares that are unlikely to provide good returns.

Unless you are relatively young and aiming for retirement in say 20+ years time some of your objectives are likely to be medium term and depending on your age medium term may be all you worry about.  When looking at the medium term volatility becomes a much more important issue than for the very long term.  In the very long term things even out, in the medium term they dont.  Active funds or portfolios can reduce volatility by preventing over reliance on individual sectors or companies.  The market historically has not been too effective here.  One saw that with the .com boom/bust and perhaps one is seeing it now with the high valuations given to some large US techs.

3) I would be equally wary of anyone focusing on market equaling returns, or any other return target based on what the market does.  A return target should be based on the objective, and the objective should relate to one's financial needs and circumstances.

"However a fund manager can certainly provide superior short/medium term returns by appropriate asset allocation within their overall remit which could be seen as choosing precisely which market to be in."
They can in theory, but in practice they are competing against everyone else, and given that they have access to broadly the same information as other fund managers, it's unlikely to be the case

 "Also In lesser researched areas such as small companies and EM, fund managers with local or sector knowledge can usefully avoid some shares that are unlikely to provide good returns."
I'd be surprised if DE Shaw and co hadn't taken inefficiencies out of these markets circa mid-90s. If a fund manager had an edge he would shut up shop and start a hedge fund - far more lucrative.

IvanOpinion

Linton said:

IvanOpinion said:

I have recently found that IFAs only want to talk to me if I am willing to give them a percentage of my overall portfolio - something I am not willing to do (because for years I pretty much got nothing for it ... I blame myself for that, I took my eye off the ball).  But yet they have the knowledge to give me the advice I seek but, so far, have only been interested by holding my portfolio to ransom rather than accept an hourly rate.  Fortunately I have got some great advice from several posters on this board (with exactly the sort of information I was after).

 IFAs can charge on a time or a fixed price basis rather than one based on % of pot size.  However there is no guarantee it would be any cheaper - presumably on average it would work out the same.  The important thing is the absolute amount of the charge, not the way in which it is expressed.  For example IFAs will often use a different % depending on the size of the pot or the size of the task.  Using a % is a common way of enabling comparisons to be paid, not a strait-jacket.

When we are talking of a significant sum and one IFA telling me that it would only cost (and yes they did use the word 'only'), 5% to sign up and over 2% per annum for management, then I don't care that they got upset when I burst out laughing (others were more reasonable, but still were only interested in taking control of my portfolio on a percentage basis).  We are talking a few hours of work per year, most of which uses templated letters and a dump of information from their software. 

It reminds of the late 80's when companies could get grants for getting consultancy advice for new computer systems.  The report was pretty much
- a 2 page templated letter with the name and address changed
- 2-3 pages description of the business and why a computer would help (80% templated, 20% personalised)
- 10 pages or so of the client companies own sales literature
- 30-40 pages of sales literature from computer and software manufacturers (photocopied if originals not available)
- finally a 2 page recommendation (again templated but fortunately it just so happened that the consultant always had a perfect matching system available).

Took a 1 hour site visit and max 2 hours to type up, photocopy (3X copies) and bind (all done by a junior clerical office member); 0.5 hour for the consultant to check over and sign the government grant forms.  Curiously the cost of consultation was always £5000 which coincidentally was the amount of grant the government offered.

Linton said:

You can get advice from the net but if it's seriously wrong that is your bad luck - there is no come back in the person responsible.  WIth an IFA you can claim compensation for inappropriate advice.  So perhaps not a good idea to make life changing decisions purely on forum advice.

Heavens to mergatroid, no.  I use advice and comments from the internet to point me in the right direction for further research and validation.

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Linton said:

BritishInvestor said:

cfw1994 said:

It is very easy to suggest “what if your Vanguard doesn’t manage to do as well as an IFA could?” with a knowing wink, suggesting IFAs will always “beat the market”,whereas the majority probably won’t.

I'm always interested to see examples of portfolios that "beat the market" given that I have visibility of a large number of offerings from numerous providers. 
The latest fad is to have a concentrated portfolio loaded with US large-cap/tech stocks, and as these tended to perform reasonably well in the recent downturn, investors have taken this as a cue that it's the holy grail, great returns with limited downside. 

Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening.

It seems to be me that people are missing the whole point of serious investing.  "Beating the market" is irrelevent.  What is important is to achieve an objective both regarding time and return,  That requires control of the risk level and returns of your investments. Any IFAs who focus on beating the market are simply not doing the job they are paid for.  Anyone who goes to an IFA with that aim is going to be disappointed, though perhaps the IFA would get them to see the wider picture assuming he/she  was willing to take them on in the first place.

The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?  How do I compare my returns with "THE market"? If I were able to put together a set of trackers that held the same allocation presumably the returns would  be very similar. What does that prove?

I haven't but I'm not sure what you could glean out of 3 years worth of performance.

We are not fund managers. We don't have to justify our decisions to anyone. We have no constraints as to how we mix and match our investments as the picture changes. We have no comparison tables to be concerned with as portfolios have no benchmark.  Our individual portfolios likewise reflect where we are in our personal investment journeys and our ultimate objectives. Nor is it a competition. Certainly no envy when others do well. Whether they be passive or active investors.

 I said from the outset of the that thread, that active management is more suited to volatile market conditions. Passive to placid ones. Nothing since has altered my long term held view.  

I'm not sure how active management (in the context of active fund managers) would be more suited to volatile conditions, given how far down the food chain (in terms of knowledge, market data, talent etc) fund managers are relative to the others "competitors" in the market. 

Why do you perceive active fund managers to be down the food chain?  Who are the competitors you refer to? 

cloud_dog

t8769 said:

I have a simple savings requirement, not a huge amount of money to invest.
Just need a pension, and to invest other finds in a mix of high, med and low risk.
Could I do this myself  or is it worth paying an IFA?
Would they get higher returns to make their fees worthwhile?
Nothing complicated about my requriements.

Thanks

Yes, you could do it yourself.  And, yes, you could use an IFA; only you know what you are capable of, what degree of responsibility you are willing to take with your future.  Everything else on here is mere waffle and other peoples views, which has zero relationship or value with yourself.

Thrugelmir

ZingPowZing said:

 Sure, Thrugelmir. Thrugelmir said:

ZingPowZing said:

We. Are making slightly different. Points.

I'm not making a point. Simply expressed a personal opinion. I was probably performing a task preparing daily Unit Trust fund pricing (manually) before you were even born. 

Sadly, yes.

Readily conceded, Thrugelmir, but you are making my point.
The vast majority of people thought little about their personal pensions through their working lives. Most of us were satisfied with a six-month out-of-date annual statement. We never thought we could take control of our workplace pensions. 2015 changed everything. For the first time, people like me were confronted with a choice. 

It is always better to be the master of one's destiny than not. For that alone, I would advise readers to take manage their pensions themselves. My expectation would be that a reader sticking his pin into a financial page will fare better than a "managed" pension. Of course that is not a guarantee; but don't say the comparison doesn't matter; it does.

Only 5 years. That clarifies matters somewhat. I can assure you that you'll never stop learning. Like life itself , investing is a rollercoaster. Less about IQ , more about emotional detachment. As making mistakes somewhere along the line is par for the course. 

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Linton said:

BritishInvestor said:

cfw1994 said:

It is very easy to suggest “what if your Vanguard doesn’t manage to do as well as an IFA could?” with a knowing wink, suggesting IFAs will always “beat the market”,whereas the majority probably won’t.

I'm always interested to see examples of portfolios that "beat the market" given that I have visibility of a large number of offerings from numerous providers. 
The latest fad is to have a concentrated portfolio loaded with US large-cap/tech stocks, and as these tended to perform reasonably well in the recent downturn, investors have taken this as a cue that it's the holy grail, great returns with limited downside. 

Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening.

It seems to be me that people are missing the whole point of serious investing.  "Beating the market" is irrelevent.  What is important is to achieve an objective both regarding time and return,  That requires control of the risk level and returns of your investments. Any IFAs who focus on beating the market are simply not doing the job they are paid for.  Anyone who goes to an IFA with that aim is going to be disappointed, though perhaps the IFA would get them to see the wider picture assuming he/she  was willing to take them on in the first place.

The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?  How do I compare my returns with "THE market"? If I were able to put together a set of trackers that held the same allocation presumably the returns would  be very similar. What does that prove?

I haven't but I'm not sure what you could glean out of 3 years worth of performance.

We are not fund managers. We don't have to justify our decisions to anyone. We have no constraints as to how we mix and match our investments as the picture changes. We have no comparison tables to be concerned with as portfolios have no benchmark.  Our individual portfolios likewise reflect where we are in our personal investment journeys and our ultimate objectives. Nor is it a competition. Certainly no envy when others do well. Whether they be passive or active investors.

 I said from the outset of the that thread, that active management is more suited to volatile market conditions. Passive to placid ones. Nothing since has altered my long term held view.  

I'm not sure how active management (in the context of active fund managers) would be more suited to volatile conditions, given how far down the food chain (in terms of knowledge, market data, talent etc) fund managers are relative to the others "competitors" in the market. 

Why do you perceive active fund managers to be down the food chain?  Who are the competitors you refer to? 

The Masters of the Universe. A great book if you've not read it
https://www.amazon.co.uk/Man-Who-Solved-Market-SHORTLISTED/dp/0241422159/ref=sr_1_1?

BritishInvestor

IvanOpinion said:

Linton said:

IvanOpinion said:

I have recently found that IFAs only want to talk to me if I am willing to give them a percentage of my overall portfolio - something I am not willing to do (because for years I pretty much got nothing for it ... I blame myself for that, I took my eye off the ball).  But yet they have the knowledge to give me the advice I seek but, so far, have only been interested by holding my portfolio to ransom rather than accept an hourly rate.  Fortunately I have got some great advice from several posters on this board (with exactly the sort of information I was after).

 IFAs can charge on a time or a fixed price basis rather than one based on % of pot size.  However there is no guarantee it would be any cheaper - presumably on average it would work out the same.  The important thing is the absolute amount of the charge, not the way in which it is expressed.  For example IFAs will often use a different % depending on the size of the pot or the size of the task.  Using a % is a common way of enabling comparisons to be paid, not a strait-jacket.

When we are talking of a significant sum and one IFA telling me that it would only cost (and yes they did use the word 'only'), 5% to sign up and over 2% per annum for management, then I don't care that they got upset when I burst out laughing (others were more reasonable, but still were only interested in taking control of my portfolio on a percentage basis).  We are talking a few hours of work per year, most of which uses templated letters and a dump of information from their software. 

It reminds of the late 80's when companies could get grants for getting consultancy advice for new computer systems.  The report was pretty much
- a 2 page templated letter with the name and address changed
- 2-3 pages description of the business and why a computer would help (80% templated, 20% personalised)
- 10 pages or so of the client companies own sales literature
- 30-40 pages of sales literature from computer and software manufacturers (photocopied if originals not available)
- finally a 2 page recommendation (again templated but fortunately it just so happened that the consultant always had a perfect matching system available).

Took a 1 hour site visit and max 2 hours to type up, photocopy (3X copies) and bind (all done by a junior clerical office member); 0.5 hour for the consultant to check over and sign the government grant forms.  Curiously the cost of consultation was always £5000 which coincidentally was the amount of grant the government offered.

Linton said:

You can get advice from the net but if it's seriously wrong that is your bad luck - there is no come back in the person responsible.  WIth an IFA you can claim compensation for inappropriate advice.  So perhaps not a good idea to make life changing decisions purely on forum advice.

Heavens to mergatroid, no.  I use advice and comments from the internet to point me in the right direction for further research and validation.

"5% to sign up and over 2% per annum for management,"
Was this definitely not a well-known wealth management firm?  Obviously depends on the size of your pot, but that sounds at the upper end for an IFA.

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Linton said:

BritishInvestor said:

cfw1994 said:

It is very easy to suggest “what if your Vanguard doesn’t manage to do as well as an IFA could?” with a knowing wink, suggesting IFAs will always “beat the market”,whereas the majority probably won’t.

I'm always interested to see examples of portfolios that "beat the market" given that I have visibility of a large number of offerings from numerous providers. 
The latest fad is to have a concentrated portfolio loaded with US large-cap/tech stocks, and as these tended to perform reasonably well in the recent downturn, investors have taken this as a cue that it's the holy grail, great returns with limited downside. 

Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening.

It seems to be me that people are missing the whole point of serious investing.  "Beating the market" is irrelevent.  What is important is to achieve an objective both regarding time and return,  That requires control of the risk level and returns of your investments. Any IFAs who focus on beating the market are simply not doing the job they are paid for.  Anyone who goes to an IFA with that aim is going to be disappointed, though perhaps the IFA would get them to see the wider picture assuming he/she  was willing to take them on in the first place.

The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?  How do I compare my returns with "THE market"? If I were able to put together a set of trackers that held the same allocation presumably the returns would  be very similar. What does that prove?

I haven't but I'm not sure what you could glean out of 3 years worth of performance.

We are not fund managers. We don't have to justify our decisions to anyone. We have no constraints as to how we mix and match our investments as the picture changes. We have no comparison tables to be concerned with as portfolios have no benchmark.  Our individual portfolios likewise reflect where we are in our personal investment journeys and our ultimate objectives. Nor is it a competition. Certainly no envy when others do well. Whether they be passive or active investors.

 I said from the outset of the that thread, that active management is more suited to volatile market conditions. Passive to placid ones. Nothing since has altered my long term held view.  

I'm not sure how active management (in the context of active fund managers) would be more suited to volatile conditions, given how far down the food chain (in terms of knowledge, market data, talent etc) fund managers are relative to the others "competitors" in the market. 

Why do you perceive active fund managers to be down the food chain?  Who are the competitors you refer to? 

The Masters of the Universe. A great book if you've not read it
https://www.amazon.co.uk/Man-Who-Solved-Market-SHORTLISTED/dp/0241422159/ref=sr_1_1?

Not one I have. Will add it to my list. My unanswered questions still stand though. 

[Deleted User]

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Linton said:

BritishInvestor said:

cfw1994 said:

It is very easy to suggest “what if your Vanguard doesn’t manage to do as well as an IFA could?” with a knowing wink, suggesting IFAs will always “beat the market”,whereas the majority probably won’t.

I'm always interested to see examples of portfolios that "beat the market" given that I have visibility of a large number of offerings from numerous providers. 
The latest fad is to have a concentrated portfolio loaded with US large-cap/tech stocks, and as these tended to perform reasonably well in the recent downturn, investors have taken this as a cue that it's the holy grail, great returns with limited downside. 

Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening.

It seems to be me that people are missing the whole point of serious investing.  "Beating the market" is irrelevent.  What is important is to achieve an objective both regarding time and return,  That requires control of the risk level and returns of your investments. Any IFAs who focus on beating the market are simply not doing the job they are paid for.  Anyone who goes to an IFA with that aim is going to be disappointed, though perhaps the IFA would get them to see the wider picture assuming he/she  was willing to take them on in the first place.

The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?  How do I compare my returns with "THE market"? If I were able to put together a set of trackers that held the same allocation presumably the returns would  be very similar. What does that prove?

I haven't but I'm not sure what you could glean out of 3 years worth of performance.

We are not fund managers. We don't have to justify our decisions to anyone. We have no constraints as to how we mix and match our investments as the picture changes. We have no comparison tables to be concerned with as portfolios have no benchmark.  Our individual portfolios likewise reflect where we are in our personal investment journeys and our ultimate objectives. Nor is it a competition. Certainly no envy when others do well. Whether they be passive or active investors.

 I said from the outset of the that thread, that active management is more suited to volatile market conditions. Passive to placid ones. Nothing since has altered my long term held view.  

I'm not sure how active management (in the context of active fund managers) would be more suited to volatile conditions, given how far down the food chain (in terms of knowledge, market data, talent etc) fund managers are relative to the others "competitors" in the market. 

Why do you perceive active fund managers to be down the food chain?  Who are the competitors you refer to? 

The Masters of the Universe. A great book if you've not read it
https://www.amazon.co.uk/Man-Who-Solved-Market-SHORTLISTED/dp/0241422159/ref=sr_1_1?

Not one I have. Will add it to my list. My unanswered questions still stand though. 

Put a ? at the end of what you want answered, Thrugelmir.

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Linton said:

BritishInvestor said:

cfw1994 said:

It is very easy to suggest “what if your Vanguard doesn’t manage to do as well as an IFA could?” with a knowing wink, suggesting IFAs will always “beat the market”,whereas the majority probably won’t.

I'm always interested to see examples of portfolios that "beat the market" given that I have visibility of a large number of offerings from numerous providers. 
The latest fad is to have a concentrated portfolio loaded with US large-cap/tech stocks, and as these tended to perform reasonably well in the recent downturn, investors have taken this as a cue that it's the holy grail, great returns with limited downside. 

Have you looked at the Great British Invest-off threads where a range of active and passive portfolios have been submitted and followed over what is now 3 years?  You may find it enlightening.

It seems to be me that people are missing the whole point of serious investing.  "Beating the market" is irrelevent.  What is important is to achieve an objective both regarding time and return,  That requires control of the risk level and returns of your investments. Any IFAs who focus on beating the market are simply not doing the job they are paid for.  Anyone who goes to an IFA with that aim is going to be disappointed, though perhaps the IFA would get them to see the wider picture assuming he/she  was willing to take them on in the first place.

The term "beating the market" is highly questionable anyway.  I hold a globally diverse growth portfolio based on active funds with only 40% US which is split 50% large companies and 50% small. Which market am I invested in?  How do I compare my returns with "THE market"? If I were able to put together a set of trackers that held the same allocation presumably the returns would  be very similar. What does that prove?

I haven't but I'm not sure what you could glean out of 3 years worth of performance.

We are not fund managers. We don't have to justify our decisions to anyone. We have no constraints as to how we mix and match our investments as the picture changes. We have no comparison tables to be concerned with as portfolios have no benchmark.  Our individual portfolios likewise reflect where we are in our personal investment journeys and our ultimate objectives. Nor is it a competition. Certainly no envy when others do well. Whether they be passive or active investors.

 I said from the outset of the that thread, that active management is more suited to volatile market conditions. Passive to placid ones. Nothing since has altered my long term held view.  

I'm not sure how active management (in the context of active fund managers) would be more suited to volatile conditions, given how far down the food chain (in terms of knowledge, market data, talent etc) fund managers are relative to the others "competitors" in the market. 

Why do you perceive active fund managers to be down the food chain?  Who are the competitors you refer to? 

The Masters of the Universe. A great book if you've not read it
https://www.amazon.co.uk/Man-Who-Solved-Market-SHORTLISTED/dp/0241422159/ref=sr_1_1?

Not one I have. Will add it to my list. My unanswered questions still stand though. 

The competitors being the quant hedge funds such as RenTech that have petabytes worth of data and employ the best talent in an attempt to find tiny edges in the market. 
https://blogs.cfainstitute.org/investor/2020/05/01/book-review-the-man-who-solved-the-market/

"The message for the average money manager could not be more clear: When you transact, it is likely against Jim Simons or someone like him (D.E. Shaw being the most obvious alternative example), so trade as little as possible."

"Another lesson for investment professionals: The most truly skilled investment managers privatize their returns; they do not want or need your money"