What's your drawdown percentage and how much of that do you spend on financial fees?

[Deleted User]

Ibrahim5 said:

I was thinking about it today. Dunstonh is always saying that DIY investors often invest at higher risk than IFAs would do. 

Of course, the real answer is “it depends”.  Advisors who charge ongoing fees for investment management are incentivized to take a lot of risk. They need to beat the market to justify the fee.  They tend to pick racy funds, take bets and slice the market. Of course its done based on wonderful predictions they buy from within the industry.  Taking extra risk works just fine during secular bull we’ve had for a while now. 

“DIY investor” covers a wide range of strategies and is kinda meaningless. 

bostonerimus

Ibrahim5 said:

I was thinking about it today. Dunstonh is always saying that DIY investors often invest at higher risk than IFAs would do. If you use an IFA a downturn is always worse because the adviser's fee is fixed. In a bad year the IFAs fees make it worse than it would otherwise have been. So when you sit down with your IFA he says "Oh dear the stock market has crashed so you have lost £50K. I have still taken £5K out for my new car". The customer may not be too happy and consider his options.

I think many DIY investors follow the returns a bit too much. An example would be Emerging Markets. They see EM funds in the financial magazines and see the results and then over weight them in their portfolio. Another mistake is to buy popular funds and they end up with small amounts in lots of funds that become tedious and confusing to manage. These are not difficult mistakes to avoid. 

You make a good point about the drag IFA fees can have on a portfolio, and by implication SWR, but remember that if they charge a percentage of the capital then their fee will go down in absolute terms in a crash, but they might have a lower threshold that kicks in at certain levels or the percentage might go up. Those are good things to watch.

Thrugelmir

Deleted_User said:

Thrugelmir said:

Deleted_User said:

In the US brokerages have been offering no-commission trading for quite some time.  In August one of Canadian brokerages has joined them.  There is no “fee” for having the “platform” either.  https://www.nbc.ca/en/about-us/news/news-room/press-releases/2021/20210823-Premiere-canadienne-BNCD-annonce-sa-nouvelle-tarification-0-de-commission.html

Maybe a free U.k offering in a couple of years? 

Commissions and “platform fees” don’t cost a lot unless you are a frequent trader, but I find there are additional cost impacts.  X-O SIPP charges me 6 quid per trade.  I refuse to pay more than a fraction of 1% of the trade value which means dividends only get reinvested once a year.  Not a huge deal but the resulting losses do add up.

Payment for order flow is illegal in the UK fortunately.  

And in Canada. No stamp duty either. I can see the spreads on both Canadian and UK platforms. Overall, trading in Canada is cheaper.  Brokerages make money on cross selling services, be it banking, robo-advisors, currency exchange or lending.  Once you set up a platform the costs of supporting it are extremely low.  UK brokerages still seem to have a lot of fat and are running a little behind on adoption of low cost solutions. X-O is a much more basic and dated platform than what my Canadian and US brokerages have to offer. A lot less can be done without having to contact a human. Mind you, I still like their price offering for an over 100k portfolio vs UK competition. 

 I think Canada is benefiting from having a massive and highly competitive financial market next door.  Although ETFs were invented in Canada. 

And no-commission trading provides meaningful advantages for a passive investors in not having to wait for the trade to be large enough, so helping to stay 100% invested.  The other side of the coin is that it can incentivize frequent trading and dumb money but its not my problem. 

The bottom line is that zero cost trading doesn't exist. Just a mirage. Ultimately reduces the competition. Resulting in dominance by a select group.  Tech is far from fail safe. When it goes badly wrong. A reputation that's taken years to build can be tarnished in seconds. 

Thrugelmir

Ibrahim5 said:

I was thinking about it today. Dunstonh is always saying that DIY investors often invest at higher risk than IFAs would do. If you use an IFA a downturn is always worse because the adviser's fee is fixed. In a bad year the IFAs fees make it worse than it would otherwise have been. So when you sit down with your IFA he says "Oh dear the stock market has crashed so you have lost £50K. I have still taken £5K out for my new car". The customer may not be too happy and consider his options.

Have you ever consulted someone with regards to your portfolio? 

DT2001

Ibrahim5 said:

I was thinking about it today. Dunstonh is always saying that DIY investors often invest at higher risk than IFAs would do. If you use an IFA a downturn is always worse because the adviser's fee is fixed. In a bad year the IFAs fees make it worse than it would otherwise have been. So when you sit down with your IFA he says "Oh dear the stock market has crashed so you have lost £50K. I have still taken £5K out for my new car". The customer may not be too happy and consider his options.

If a DIY investor takes on higher risk then one using an IFA should see less downside in a crash so would, despite the fees, be better off.
I see the role of an IFA as strategic. I want to get to point X, with Y risk how long will it take. I do not see it as who can make the best returns - I can but I might lose more and fail to achieve the objective.
Jim Slater (which shows my age) used the Zulu theory which I read to mean concentrate on a narrow field (in our case our self employed jobs). If we do that well we’ll earn extra to cover our IFA’s fees, which are paid out of gross income.

Ibrahim5

The primary objective for an IFA is to get his annual fees year after year. The customer just sees a total portfolio valuation year after year. My portfolio was £16K last year. Now it is £18K. Any increase and both parties will generally be happy. It's decreases where the customer gets upset. So investing in less risky investments should reduce the drops in bad years and keep the relationship going so the adviser can pocket their fees.

[Deleted User]

Thrugelmir said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

In the US brokerages have been offering no-commission trading for quite some time.  In August one of Canadian brokerages has joined them.  There is no “fee” for having the “platform” either.  https://www.nbc.ca/en/about-us/news/news-room/press-releases/2021/20210823-Premiere-canadienne-BNCD-annonce-sa-nouvelle-tarification-0-de-commission.html

Maybe a free U.k offering in a couple of years? 

Commissions and “platform fees” don’t cost a lot unless you are a frequent trader, but I find there are additional cost impacts.  X-O SIPP charges me 6 quid per trade.  I refuse to pay more than a fraction of 1% of the trade value which means dividends only get reinvested once a year.  Not a huge deal but the resulting losses do add up.

Payment for order flow is illegal in the UK fortunately.  

And in Canada. No stamp duty either. I can see the spreads on both Canadian and UK platforms. Overall, trading in Canada is cheaper.  Brokerages make money on cross selling services, be it banking, robo-advisors, currency exchange or lending.  Once you set up a platform the costs of supporting it are extremely low.  UK brokerages still seem to have a lot of fat and are running a little behind on adoption of low cost solutions. X-O is a much more basic and dated platform than what my Canadian and US brokerages have to offer. A lot less can be done without having to contact a human. Mind you, I still like their price offering for an over 100k portfolio vs UK competition. 

 I think Canada is benefiting from having a massive and highly competitive financial market next door.  Although ETFs were invented in Canada. 

And no-commission trading provides meaningful advantages for a passive investors in not having to wait for the trade to be large enough, so helping to stay 100% invested.  The other side of the coin is that it can incentivize frequent trading and dumb money but its not my problem. 

The bottom line is that zero cost trading doesn't exist. Just a mirage. Ultimately reduces the competition. Resulting in dominance by a select group.  

Not zero, but very cheap trading with zero commissions certainly exists for investors.  I’ve seen no evidence that it reduces competition. Guess it depends on how you define “competition”.  The service and pricing are more competitive than 10 years ago. Buying shares over the phone, paying lots for each trade and having paper certificates was fun but can’t say I miss any of it. 

Albermarle

Ibrahim5 said:

I was thinking about it today. Dunstonh is always saying that DIY investors often invest at higher risk than IFAs would do. If you use an IFA a downturn is always worse because the adviser's fee is fixed. In a bad year the IFAs fees make it worse than it would otherwise have been. So when you sit down with your IFA he says "Oh dear the stock market has crashed so you have lost £50K. I have still taken £5K out for my new car". The customer may not be too happy and consider his options.

Usually the point being made is that the main danger is that an inexperienced  DIY investor can often invest over their risk tolerance, and then panic and pull out when the markets plummet. 
As we all know this is the worst thing you can do, and can even put people off investing for good.
So in this case IFA fees would pale into insignificance, if it means this scenario can be avoided .

Of course if  you compare a reasonably  experienced DIY investor to one paying advisor fees , then it is different.

michaels

Ibrahim5 said:

The primary objective for an IFA is to get his annual fees year after year. The customer just sees a total portfolio valuation year after year. My portfolio was £16K last year. Now it is £18K. Any increase and both parties will generally be happy. It's decreases where the customer gets upset. So investing in less risky investments should reduce the drops in bad years and keep the relationship going so the adviser can pocket their fees.

Only if the fees are hidden. 

If you received a monthly bill that only listed charges and did not even mention performance then it might just concentrate a few minds.

Thrugelmir

Deleted_User said:

Thrugelmir said:

Deleted_User said:

Thrugelmir said:

Deleted_User said:

In the US brokerages have been offering no-commission trading for quite some time.  In August one of Canadian brokerages has joined them.  There is no “fee” for having the “platform” either.  https://www.nbc.ca/en/about-us/news/news-room/press-releases/2021/20210823-Premiere-canadienne-BNCD-annonce-sa-nouvelle-tarification-0-de-commission.html

Maybe a free U.k offering in a couple of years? 

Commissions and “platform fees” don’t cost a lot unless you are a frequent trader, but I find there are additional cost impacts.  X-O SIPP charges me 6 quid per trade.  I refuse to pay more than a fraction of 1% of the trade value which means dividends only get reinvested once a year.  Not a huge deal but the resulting losses do add up.

Payment for order flow is illegal in the UK fortunately.  

And in Canada. No stamp duty either. I can see the spreads on both Canadian and UK platforms. Overall, trading in Canada is cheaper.  Brokerages make money on cross selling services, be it banking, robo-advisors, currency exchange or lending.  Once you set up a platform the costs of supporting it are extremely low.  UK brokerages still seem to have a lot of fat and are running a little behind on adoption of low cost solutions. X-O is a much more basic and dated platform than what my Canadian and US brokerages have to offer. A lot less can be done without having to contact a human. Mind you, I still like their price offering for an over 100k portfolio vs UK competition. 

 I think Canada is benefiting from having a massive and highly competitive financial market next door.  Although ETFs were invented in Canada. 

And no-commission trading provides meaningful advantages for a passive investors in not having to wait for the trade to be large enough, so helping to stay 100% invested.  The other side of the coin is that it can incentivize frequent trading and dumb money but its not my problem. 

The bottom line is that zero cost trading doesn't exist. Just a mirage. Ultimately reduces the competition. Resulting in dominance by a select group.  

Not zero, but very cheap trading with zero commissions certainly exists for investors.  I’ve seen no evidence that it reduces competition. Guess it depends on how you define “competition”.  The service and pricing are more competitive than 10 years ago. Buying shares over the phone, paying lots for each trade and having paper certificates was fun but can’t say I miss any of it. 

Look at the consolidation of trading platforms in the UK over the past decade. Investment in technology is only warranted with scale. Platforms historically have made their profits by putting customers funds on overnight deposit. With overnight rates falling to paltry levels. Not the golden goose it once was. 

Downside of lack of paper certificates is receiving company circulars, annual accounts, being excluded from capital raising exercises, ability to attend AGM's easily. Nothing better to meet the company's management in person as a small investor. 

With the advent of robo trading smaller investors are at an increasing disadvantage in this globalised world. A reason I tend to do the majority of my investing by turning over stones in a rock pool. Than swimming in an ocean full of sharks.