Ethical Investments

choi

My IFA Breakdown for Ethical Portfolio

IFA                               0.80%
Platform Charge       0.30%
DFM                            0.30%
Fund Management. 0.70%
Transaction Chge.    0.10%

Total.                           2.20%

MX5huggy

Shocking! 

Vanguard ESG would cost you less than 0.38% 

Use this to see the effect of fees http://www.candidmoney.com/calculators/investment-charges-impact-calculator

The trouble is you’ve gone IFA route but then you’re restricting their options so not really using the IFA. 

Alexland

The ongoing cost will depend on the ethical requirement. A low cost ESG tracker fund will be fine for doing a quick filter on the obvious tobacco, weapon, etc companies (assuming the OP is comfortable with the associated volatility) but if looking for something different or to exclusively impact invest in companies that make a positive difference the choice will be less and the costs will be higher. I echo the earlier comment about the danger of thematic investing in energy - diversification remains important.

dunstonh

choi said:

My IFA Breakdown for Ethical Portfolio

IFA                               0.80%
Platform Charge       0.30%
DFM                            0.30%
Fund Management. 0.70%
Transaction Chge.    0.10%

Total.                           2.20%

Ignore the transaction charges.  That is an EU creation that nearly everyone ignores but it is mandatory for them to be disclosed.

Going over 2% is unnecessary.   
IFAs have access to cheaper platforms (you could get in the 0.1x% to 0.2x% range.  So, you may ask the IFA why they feel 0.3% is necessary.      The cheaper ones tend to lack functionality or have issues.  So, not going with the absolute cheapest can be easily justified.      However, there are some very good options in the 0.2x% range. But the platform charge difference is not a big chunk of the cost.

IFA charge is high for a £350k portfolio. Especially as they are farming out the investments to a DFM.  So, you can effectively say that the total advice costs are 1.1%.   An advisory IFA could be available to do you at 0.50% rather than a discretionary one at 1.1% total.     If the DFM was dropped and IFA kept their charge it would save 0.3%.  If the IFA charged 0.5% with no DFM then it would save 0.6%.  

Fund management charges indicate that is probably 100% active or close enough.  i.e. not hybrid (mixture of passive/active) and certainly not totally passive.      With ESG investing where you have specific requirements on the ESG side, you do need to go more active and expect the cost to increase.    Also, ESG portfolios have to carry out increased due diligence to ensure the positive and negative screening is done and fund data reporting can influence selection.  Some funds can be cheap or great performers but do not produce the required level of data to satisfy ESG due diligence.  The worst thing that can happen to an ESG investor is that they find out that a fund contains a non ESG compliant holding that was categorised under "other" and missed by the adviser/DFM.  It's like Vegan eating meat by mistake.  The cost is not the primary concern.  Suitability is.

I am not overly concerned about the fund costs seeing as it's ESG.  I think the adviser/DFM/platform combo is probably where work is needed.   I just checked an update on our ESG offering at medium risk (medium-term) which comes out at 0.70% on fund charge and its performance, net of charges has outperformed VLS60 by 0.76% from launch which has a much cheaper 0.22% fund charge but no ESG.  (in reality, the ESG portfolio and VLS60 follow virtually identical lines and take it in turns on any given day to be better than the other).   So, charges are important but with ESG, they are not as important and may not actually be yielding results much different to the cheaper options.

The point I am labouring on is that with ESG you expect to pay more and its not necessarily an issue.   However, the IFA/DFM/Platform cost are area to look at in this case.

choi

Thanks dunstohn

Comprehensive advice as always

I have made an appointment with another IFA who is Chartered and has given me a quote for ethical investment portfolio of 1.5 % total

With anticipated return at 7.0% above fees

Based on past performance

tebbins

choi said:

Thanks dunstohn

Comprehensive advice as always

I have made an appointment with another IFA who is Chartered and has given me a quote for ethical investment portfolio of 1.5 % total

With anticipated return at 7.0% above fees

Based on past performance

That's very optimistic. I'm not aware of any asset classes that, credibly, have such high return expectations.

dunstonh

I have made an appointment with another IFA who is Chartered and has given me a quote for ethical investment portfolio of 1.5 % total

That is more in the ballpark of expectation for ESG.

With anticipated return at 7.0% above fees

Be on guard with that.  Whilst it has been possible to get that, especially with higher equity ratios (where it has been particularly easy to exceed that), it is worth noting that the last decade has given returns higher than the long term average.   That won't always be the case and it's important not to become complacent and think that it's the norm.     I am sure it will be fleshed out and discussed more in detail on the presentation but be on guard.

tebbins

I suspect they may be projecting higher returns from private equity or growth-oriented equity under the ESG banner - these expectations may be very optimistic. I discovered some returns projections of 13% for investments my folks started in the late 90s/early 2000s. Reality has been even more disappointing than the 9% "lower estimate".

dunstonh

 discovered some returns projections of 13% for investments my folks started in the late 90s/early 2000s. Reality has been even more disappointing than the 9% "lower estimate".

13% pa returns were commonplace in the 90s.      The projections reflected the era.  Nowadays, projections understate what you would expect.....but who knows

choi

dunstonh said:

I have made an appointment with another IFA who is Chartered and has given me a quote for ethical investment portfolio of 1.5 % total

That is more in the ballpark of expectation for ESG.

With anticipated return at 7.0% above fees

Be on guard with that.  Whilst it has been possible to get that, especially with higher equity ratios (where it has been particularly easy to exceed that), it is worth noting that the last decade has given returns higher than the long term average.   That won't always be the case and it's important not to become complacent and think that it's the norm.     I am sure it will be fleshed out and discussed more in detail on the presentation but be on guard.

I did think that figure was high

I'm hoping I get a more realistic view at the meeting