Could my pension be working harder?

[Deleted User]

DT2001 said:

The maths does not think that yours and your IFA’s interests coincide. Lets say you have a 100k portfolio and the IFA charges 1%. If you underperform the market by 1% a year for the next 30 years with 7% market growth, your portfolio will be short around 225k. More if you are contributing.  And you don’t care about the value of the fund until you start the withdrawals in 30 years (or at least you shouldn’t). 

The IFA’s interests are much more short term. He cares about his bills now and in the next few years.  Need to be paid. He cares about his cash flow. He is very unlikely to even work at the same firm in 30 years. Sure, he will lose 1% of 1% next year if you underperform by 1%.  That’s 10 quid. He will make 1k by sweet talking to an extra client. What would rock his boat 1k or 10 quid? 

And he’ll keep you because someone going to an IFA year in and year out probably hasn’t bothered to learn about time and money weighted returns to understand whats going on. 

Which is why the most successful IFAs are the ones who are great at marketing rather than the ones who are good at maximizing your returns or are good at maths. And its very hard to maximize when the same pot of money is getting charged thousands again and again and again and again.  This misalignment is even worse during the withdrawal phase.  

And one can see the value of an upfront charge to set up the portfolio if the punter is ignorant. The running of it should be straightforward given the investment vehicles we have today.  But its not in IFAs interest to have you off the hook. Your interest is simplicity. But simple does not take a lot of effort. His interest is complexity to impress you better and so you have to use him for the next few years. 

Its not IFAs fault. Just how the system works and how he is incentivised. There will be some IFAs who work differently but incentives are important for an average person. 

As I said in a previous post I work an extra hour a week to cover the fees because I am aware of the compounding effect of fees. Fortunately only paying 0.5%.

I am with a firm that has been around for quite a few years so hope they have at least a medium term outlook. They are IFA’s not wealth managers or FA’s so some plus points.

Maybe your objective is to maximise your pot mine is to provide a level of income with minimised risk.

My objective is to provide for the family and not to run out of money before the lights go out. 

My point is that your 0.5% in ongoing charges does not buy anything, except for a feel good factor. Does not reduce risk. But everyone has a different perspective; we all decide for ourselves. 

zagfles

Rich1976 said:

Prism said:

zagfles said:

dunstonh said:

Apart from its high UK bias which may or may not be a bad thing depending on your opinion there is nothing wrong with the LS100 fund.

Except a global tracker fund may be available cheaper and without the home bias.

Examples?

Fidelity Index World - 0.12% (developed world)
HSBC FTSE All-World - 0.13%

Legal and General International index 0.08% on HL

I've never really paid much attention to the VLS range, but looking at VLS100 it's not sensible to compare it to a global index tracker, because it's not an index tracker. It's actively managed in so far as selecting the underlying passive funds to invest in. So paying an additional 0.1% or so for such "active management" doesn't sound like a bad deal.

Obviously in recent years the active management policy of home bias has happened to cause a slight drag on performance compared with a true world index tracker, due to the UK market underperforming and the pound weakening, but I can understand the reasoning for it. I think I'd prefer that to the above trackers which look to be 55-60% USA.

NottinghamKnight

I don't think I'd be prepared to pay any more for 'active' management that just rebalances to an arbitrary pre determined bias.

zagfles

NottinghamKnight said:

I don't think I'd be prepared to pay any more for 'active' management that just rebalances to an arbitrary pre determined bias.

It's not "pre determined", as the KIID makes clear https://www.vanguardinvestor.co.uk/rs/gre/gls/1.3.0/documents/1282/gb

"The  Fund  is  actively  managed  in  that  the  Investment  Adviser has discretion in respect of the Associated Schemes in which the Fund may invest and the allocations to them, each of which may change over time"

The only thing "pre determined" seems to be the shares/bonds ratio as the name implies (VLS 100 is 100% shares, VLS 80 is 80% shares, 20% bonds etc).

[Deleted User]

zagfles said:

NottinghamKnight said:

I don't think I'd be prepared to pay any more for 'active' management that just rebalances to an arbitrary pre determined bias.

It's not "pre determined", as the KIID makes clear https://www.vanguardinvestor.co.uk/rs/gre/gls/1.3.0/documents/1282/gb

"The  Fund  is  actively  managed  in  that  the  Investment  Adviser has discretion in respect of the Associated Schemes in which the Fund may invest and the allocations to them, each of which may change over time"

The only thing "pre determined" seems to be the shares/bonds ratio as the name implies (VLS 100 is 100% shares, VLS 80 is 80% shares, 20% bonds etc).

I don’t like this language but my suspicion is that they are leaving enough room for themselves to change the make-up to more efficient funds once they become available. So its really a passive portfolio with some room for manoeuvre.

Right now they seem to be using UK wrappers for US funds which is  adding costs.  Wonder if anyone has information on how the make-up changed up to now (if at all).