Comparing IFA managed portfolio to Vanguard LS60

dunstonh

Now, why do some financial advisors choose a dozen funds for their clients? Is it to bamboozle the client into thinking investing is beyond ordinary folk; so make it look like a substantial yearly fee is justified?

There are around 10 key sectors (as in country/region/asset type).  So, if you have one fund in each then you would have around that level of funds.

Some bond funds we’ve had listed here have half a dozen categories of funds in them: corporate, government, high yield, investment grade, other(!). 

Same with equities in terms of small cap, mid cap, large cap, value etc.

And a fund like that might cost 0.8%/yr. 

Nowadays, it is largely unnecessary for a fund to go that high in charges apart from more focused/specialist areas.  pretty much property, emerging markets, Asia and any niche-focused fund.

And if you build a portfolio that uses passive and managed then you are looking at around 0.2-0.4% is a more typical overall figure.

Thrugelmir

Prism said:

fred246 said:

I was just pointing out that the US won't do better every year. This year it's way ahead but it can't be every year.

Well the big US companies are currently a lot more profitable than the UK ones 

Tesla highly profitable? 

Prism

Thrugelmir said:

Prism said:

fred246 said:

I was just pointing out that the US won't do better every year. This year it's way ahead but it can't be every year.

Well the big US companies are currently a lot more profitable than the UK ones 

Tesla highly profitable? 

I don't consider Tesla a big US company

fred246

And if you build a portfolio that uses passive and managed then you are looking at around 0.2-0.4% is a more typical overall figure.

It would have to be mainly passive to get those figures. So mainly passive but with some actives to make it look complicated. IFAs don't want simple because customers will just DIY.

Prism

fred246 said:

And if you build a portfolio that uses passive and managed then you are looking at around 0.2-0.4% is a more typical overall figure.

It would have to be mainly passive to get those figures. So mainly passive but with some actives to make it look complicated. IFAs don't want simple because customers will just DIY.

A 50/50 split of passive and active would probably get you there assuming the passive charges are around 0.1% and the actives up to 0.7%. I honestly don't believe having 10 or so funds is complicated either for an IFA or DIY portfolio. Vanguard Lifestrategy holds over 10 funds.

BananaRepublic

fred246 said:

And if you build a portfolio that uses passive and managed then you are looking at around 0.2-0.4% is a more typical overall figure.

It would have to be mainly passive to get those figures. So mainly passive but with some actives to make it look complicated. IFAs don't want simple because customers will just DIY.

I pay about 1% for many of my funds and the managers have earned their fees when I compare each fund to the benchmark. Active funds can have real benefits ie higher returns than corresponding passive funds, and access to markets/sectors for which no passive funds exist. 

An IFA does not deliberately make it complex to justify their fees. Diversification over sectors, and funds on each sector, significantly reduces risk. And they don’t have magic insight into each fund, their job is to create a portfolio with a risk profile that matches the client’s risk tolerance and future needs eg retire in ten years time. 

JohnWinder

dunstonh said:

Now, why do some financial advisors choose a dozen funds for their clients? Is it to bamboozle the client into thinking investing is beyond ordinary folk; so make it look like a substantial yearly fee is justified?

There are around 10 key sectors (as in country/region/asset type).  So, if you have one fund in each then you would have around that level of funds.

Some bond funds we’ve had listed here have half a dozen categories of funds in them: corporate, government, high yield, investment grade, other(!). 

Same with equities in terms of small cap, mid cap, large cap, value etc.

And a fund like that might cost 0.8%/yr. 

Nowadays, it is largely unnecessary for a fund to go that high in charges apart from more focused/specialist areas.  pretty much property, emerging markets, Asia and any niche-focused fund.

And if you build a portfolio that uses passive and managed then you are looking at around 0.2-0.4% is a more typical overall figure.

Thanks. It's good to get into some detail which my post glossed over (for readability).

I argued the benefit of simplicity and DIY which does eliminate sectors of the investment firmament like private equity, real estate, derivatives etc, but I don't know how 'key' they are. I don't think one could be confident that on a risk matched basis any would do better than a simple stocks/bonds choice, even if it had to be 100% stocks which was leverage with a loan to increase the investment if one wanted more risk/return.

I can't picture your ~10 'key' sectors, unless they're things like japan equities, emerging market real estate etc, in which case I'd be interested to know what examples you had in mind. But with a global equity fund (is that one or two 'key' sectors?) and a global government bond fund one can have a decent portfolio that is understandable and low cost.

In terms of my aiming for DIY simplicity, I don't think it's apples and apples to compare a bond fund with corporate, high yield etc bonds to an equity fund with all cap sizes and value, growth etc shares. The single equity fund you could hold should have all those because you want the broadest diversification, and you get the 'value' and 'growth' shares 'free' with all cap - they don't need listing separately as a selling point. But that bond fund only needs safe, government bonds - simple to understand(!); if one wants more risk simply hold less of the government bond fund and more of the equity fund, don't complicated the bond fund with equity like components in terms of risk/return.

It might be largely unnecessary to charge as high as 0.8%/year these days, but that's the fee for the first bond fund listed by the OP as unrepresentative as it might be. But fees are a guaranteed cost without any guarantee of a commensurate return. One should aim low on fees.

Fran88

A friend of mine is trying to become a member of this forum and when completing the registration gets the response  “you are not allowed to register at this time “. Can somebody advise and help.  Many thanks.

eskbanker

Fran88 said:

A friend of mine is trying to become a member of this forum and when completing the registration gets the response  “you are not allowed to register at this time “. Can somebody advise and help.  Many thanks.

https://help.moneysavingexpert.com/hc/en-us/articles/360000212368-How-do-I-join-the-forum- explains what to do, but posting on a more suitable board such as https://forums.moneysavingexpert.com/categories/site-feedback would be better than jumping in on an unrelated thread like this....