Wealth management performance and charges

GeoffTF

Cus said:

GeoffTF said:

Cus said:

Do your numbers include transaction costs and charges? So buying and selling of the underlying assets in the fund? On a normal breakdown of fees document they show ongoing fund costs separately from that? I guess I mean the cost the fund manager pays when trading the underlying assets to match an index. Or is that basically the lower performance of the fund versus the index it is trying to mimic?

Yes, as I said. They are Vanguard trackers. I used the data here:

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

I added "Ongoing Costs" to "Transaction Costs" for each fund and multiplied the result by the value of that holding. I added that up for all my fund holdings, and divided by the size of my portfolio (which contains 40% cash/bond investments with no ongoing costs). My brokerage costs are negligible as a percentage.

Thanks. Looks like the cheapest vanguard fund is 0.23% with lots above. I always though vanguard were cheaper. Must be the US ones that are cheaper.

No. You can use VEVE, VFEM and VUKE. (Actually, I use some Vanguard OEICs, but that does not change the big picture.) Those costs get multiplied by 0.6 for a 60 / 40 portfolio if you pay nothing for your bond exposure.

I use cash flow rebalancing, which minimises my portfolio turnover. It is also worth noting that larger investors not only have a big divisor for their fixed costs, but they do not always pay the advertised rates either.

GeoffTF

bostonerimus said:

Cus said:

Do your numbers include transaction costs and charges? So buying and selling of the underlying assets in the fund? On a normal breakdown of fees document they show ongoing fund costs separately from that? I guess I mean the cost the fund manager pays when trading the underlying assets to match an index. Or is that basically the lower performance of the fund versus the index it is trying to mimic?

I'm using US based funds so the fees are a little different. For VTSAX (Total US Stock market) the expense ratio is 0.04% and it's annual average return since 2000 is 8.61% whereas the index it tracks has returned 8.62% so that's 0.01% in extra costs.

UK based investors have never been allowed to buy US mutual funds. More recently, UK retail investors have effectively been banned from buying US based ETFs.

Cus

GeoffTF said:

Cus said:

GeoffTF said:

Cus said:

Do your numbers include transaction costs and charges? So buying and selling of the underlying assets in the fund? On a normal breakdown of fees document they show ongoing fund costs separately from that? I guess I mean the cost the fund manager pays when trading the underlying assets to match an index. Or is that basically the lower performance of the fund versus the index it is trying to mimic?

Yes, as I said. They are Vanguard trackers. I used the data here:

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

I added "Ongoing Costs" to "Transaction Costs" for each fund and multiplied the result by the value of that holding. I added that up for all my fund holdings, and divided by the size of my portfolio (which contains 40% cash/bond investments with no ongoing costs). My brokerage costs are negligible as a percentage.

Thanks. Looks like the cheapest vanguard fund is 0.23% with lots above. I always though vanguard were cheaper. Must be the US ones that are cheaper.

No. You can use VEVE, VFEM and VUKE. (Actually, I use some Vanguard OEICs, but that does not change the big picture.) Those costs get multiplied by 0.6 for a 60 / 40 portfolio if you pay nothing for your bond exposure.

I use cash flow rebalancing, which minimises my portfolio turnover. It is also worth noting that larger investors not only have a big divisor for their fixed costs, but they do not always pay the advertised rates either.

I appreciate the 60/40 idea. But on the link you posted VEVE has a total cost of 0.33%.  The US equity one is 0.36%
How can they charge 9 times more than what Bostonerimus pays in the US?? 
What am I missing here? 


Edit to spell posters name correctly

bostonerimus

Cus said:

GeoffTF said:

Cus said:

GeoffTF said:

Cus said:

Do your numbers include transaction costs and charges? So buying and selling of the underlying assets in the fund? On a normal breakdown of fees document they show ongoing fund costs separately from that? I guess I mean the cost the fund manager pays when trading the underlying assets to match an index. Or is that basically the lower performance of the fund versus the index it is trying to mimic?

Yes, as I said. They are Vanguard trackers. I used the data here:

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

I added "Ongoing Costs" to "Transaction Costs" for each fund and multiplied the result by the value of that holding. I added that up for all my fund holdings, and divided by the size of my portfolio (which contains 40% cash/bond investments with no ongoing costs). My brokerage costs are negligible as a percentage.

Thanks. Looks like the cheapest vanguard fund is 0.23% with lots above. I always though vanguard were cheaper. Must be the US ones that are cheaper.

No. You can use VEVE, VFEM and VUKE. (Actually, I use some Vanguard OEICs, but that does not change the big picture.) Those costs get multiplied by 0.6 for a 60 / 40 portfolio if you pay nothing for your bond exposure.

I use cash flow rebalancing, which minimises my portfolio turnover. It is also worth noting that larger investors not only have a big divisor for their fixed costs, but they do not always pay the advertised rates either.

I appreciate the 60/40 idea. But on the link you posted VEVE has a total cost of 0.33%.  The US equity one is 0.36%
How can they charge 9 times more than what Bostonemirus pays in the US?? 
What am I missing here? 

There are many things I find unbelievable about the UK right now. The cost difference must be due to scale, basic costs, and maybe what the market can bear.

bostonerimus

GeoffTF said:

bostonerimus said:

Cus said:

Do your numbers include transaction costs and charges? So buying and selling of the underlying assets in the fund? On a normal breakdown of fees document they show ongoing fund costs separately from that? I guess I mean the cost the fund manager pays when trading the underlying assets to match an index. Or is that basically the lower performance of the fund versus the index it is trying to mimic?

I'm using US based funds so the fees are a little different. For VTSAX (Total US Stock market) the expense ratio is 0.04% and it's annual average return since 2000 is 8.61% whereas the index it tracks has returned 8.62% so that's 0.01% in extra costs.

UK based investors have never been allowed to buy US mutual funds. More recently, UK retail investors have effectively been banned from buying US based ETFs.

Yes, if I return to the UK, in my general accounts I will have to use US Vanguard ETFs that are UK reporting or just stick with cash.

GeoffTF

Cus said:

GeoffTF said:

Cus said:

GeoffTF said:

Cus said:

Do your numbers include transaction costs and charges? So buying and selling of the underlying assets in the fund? On a normal breakdown of fees document they show ongoing fund costs separately from that? I guess I mean the cost the fund manager pays when trading the underlying assets to match an index. Or is that basically the lower performance of the fund versus the index it is trying to mimic?

Yes, as I said. They are Vanguard trackers. I used the data here:

https://www.vanguardinvestor.co.uk/content/documents/legal/vanguard-full-fund-costs-and-charges.pdf

I added "Ongoing Costs" to "Transaction Costs" for each fund and multiplied the result by the value of that holding. I added that up for all my fund holdings, and divided by the size of my portfolio (which contains 40% cash/bond investments with no ongoing costs). My brokerage costs are negligible as a percentage.

Thanks. Looks like the cheapest vanguard fund is 0.23% with lots above. I always though vanguard were cheaper. Must be the US ones that are cheaper.

No. You can use VEVE, VFEM and VUKE. (Actually, I use some Vanguard OEICs, but that does not change the big picture.) Those costs get multiplied by 0.6 for a 60 / 40 portfolio if you pay nothing for your bond exposure.

I use cash flow rebalancing, which minimises my portfolio turnover. It is also worth noting that larger investors not only have a big divisor for their fixed costs, but they do not always pay the advertised rates either.

I appreciate the 60/40 idea. But on the link you posted VEVE has a total cost of 0.33%.  The US equity one is 0.36%
How can they charge 9 times more than what Bostonemirus pays in the US?? 
What am I missing here? 

IE00BKX55T58 Vanguard FTSE Developed World UCITS ETF - (USD) Distributing
Ongoing Costs 0.12% Transaction Costs 0.02% One-Off Costs 0.04% Incidental Costs 0.00% Account Fee 0.15% Total Costs 0.33%

Ongoing Costs + Transaction Costs = 0.12% + 0.02% = 0.14%

I do not pay Vanguard's account fee.

The One-off Costs are the market spread of 0.02%. Hargreaves Lansdown quotes 0.09%, but Vanguard seems to do better on its own platform. These costs are multiplied by the portfolio turnover, which is very small in my case. Since I am using cash flow rebalancing, I could say that they are not recurring costs at all, and subsume them into the one off costs of buying and eventually selling the portfolio, but that may be a little unfair. Vanguard quotes the one-off costs for OEICs and Unit Trusts as zero. That is perhaps misleading, because they use partial swing pricing. Nonetheless, the one-off cost for bed and ISA are zero if you use the same OEIC both inside and outside the ISA and have enough cash in the ISA to do both the sale and purchase at the same pricing point.

The main reason why Vanguard funds are cheaper in the US is scale. Competition is also very fierce over there.

gm0

Worth disentangling what you want from advice in general, whether you are invested at the risk level you want, and whether this vehicle is a sensible choice for you.  And whether your adviser (in respect of the first point delivers what you need and is someone you trust to do that - if not the action is clear).  If they+you do then it is less clear as another task will be finding someone else that does who also offers more cost effective products and services.

This lot are without a doubt the poster child FA to attract dismay and resentment on here because they charge so much and despite this are quite successful as a volume business. But there are many others in the shadows operating at similar and higher net worth levels who rarely get a mention but provide similar things at similar costs. It's in part just how that wealth management FA market is.

You have clearly given SJP the impression at some point that you wanted to invest conservatively with a low/moderate risk appetite or some such by the definitions in use at the time when it was done.   I am not  surprised that you are hazy about how risk appetite / investment choices / portfolios / groups of managed funds / underlying investments actually map through.  It's almost as though it is *deliberately* designed to obfuscate and make market comparison difficult other than at the very top level - the net fees number after a period of years.

Exit tariffs

There is worse news I am afraid.  Depending upon the contract you signed and what contributions you have made in recent years - the SJP contract often specifies "exit charges" (not called this but it is what they are - essentially you are charged the ongoing management fees these recently injected funds would have attracted if you hadn't left at date X for a period deducted on exit.  Your annual SJP reports will likely break out this number alongside investment value.  It's not a £50 exit admin fee - it's the full fat management fees these funds would attract for a spell if you had stayed.  And recent is defined very generously (for them). All designed to create a financial incentive not to leave. Hotel California.  There are some confected arguments presented about investment and product costs spread over time - but all that and the emotions it generates with people are fairly irrelevant as it's just a contractual term you agreed to. Very few other retail pension investment managers do this to the same extent.  So it can be viewed as cheeky going on impudent.  Or a piece of clever if amoral product design. Small print eh.

You need to understand if this applies to you and what the value is.  It is part of your decision and pros/cons of the cost to leave once you disentangle the issues at the top of the post. So go and read your small print and then if you are thinking about leaving - get your understanding confirmed by the SJP representative.

I have been an SJP customer - I setup something for a dependent with them to understand the service and its performance and costs on a small amount of money before considering using them for anything material.  Which I decided not to do.  I bear them no ill will.  I just don't want what they are selling at the prices they are selling it at.  I decided I didn't want to buy that kind of service at all in the end from a wealth manager brand or from a high street IFA.

Options to consider

DIY is cheapest depending upon how you value your time spent.  There is a time commitment to get ready to do this and then admin.

Transactional advice move (via a DC pension review) to an adviser introduced platform without ongoing management. This is likely next cheapest as an ongoing proposition and gets you out of the FA market clutches. Advised as suitable portfolio at a major platform such as an Aegon (or similar whoever the adviser uses for your risk category and net worth) - but without an adviser thereafter for ongoing needs (neither cost nor service). The company doing the move will levy an investment up front fee on the way in. It's how they get paid.  This will sting set alongside SJP exit charges.  Or delay payback.  But there it is.

New relationship with an IFA who doesn't use a DFM will get you to something advised and suitable with an ongoing management retainer at about 0.5% pa for that + platform and funds - which vary - but the product/platform fee will be small compared to the wealth management sector/SJP equivalent even if fund components are similar underneath for actives.
So like the 2nd one but +0.5%

All of these are potentially materially cheaper in annual drag on returns than what SJP are doing now.   

What the returns are depends upon what you invest in.  What is left for you depends upon these charges.  You are paid last.

How many years the cost to change pays back for leaving is something to work out once you have worked out how you feel about the other aspects of advice.

Finally one to avoid other than similar wealth manager outfits

An "IFA" (or one who is in transition to being an FA) with a DFM layer who still charges the full 0.5% and bills through the DFM this will be closest in product design and charges to the SJP approach.  Suggest you leave wealth management sector meaningfully - or that you don't bother

Only you can resolve what you need out of advice and have time for. 

Good luck whatever you decide

Zadumbreion

I find this whole SJP thing quite fascinating.

I will shortly have a fairly decent lump sum to invest and so a few months ago I started looking for local FAs and IFAs. One of the first I spoke to seemed to tick all the boxes: he seemed very well informed, very knowledgeable, clearly passionate about his work and did not give off any salesman type vibes at all. In essence, I got on very well with him and rapidly came to the conclusion he wasn't an idiot and I could work with him. We did some initial work on establishing my needs etc and through all of this he did nothing but reinforce my impression that he was an honest, knowledgeable, friendly and professional Chartered Financial Planner.

He is also an SJP partner. I had spent a lot of time reading nothing but bad things about SJP, and even though on paper the idea of a company carefully selecting external fund managers and ruthlessly cutting them if they perform badly seems like a great concept, I struggled to find much support for them (including obviously on this forum).

I was quoted all-inclusive fees of 1.8% with no entry charges or exit fees (we didn't discuss pensions yet for a couple of reasons) and when I started to look around  this didn't seem madly out of whack with the combined cost of an IFA (he gets 0.5%) and a separate investment manager / platform etc. His assertion is that SJP - in his experience over the long term - do usually outperform the benchmarks enough to cover their fees, which in the end is surely what it all boils down to.

Anyway - I have some issues with the ad valorem fixed percentage model, but I appreciate that an FA has a lot to offer in terms of taxation advice etc and that knowledge and experience deserves to be paid for. So I went to see him last week essentially to say "I like you, and I trust you, but I don't want to invest in SJP, what other options are there?"

An hour later I came away feeling convinced that he partners with SJP because he genuinely feels they offer a useful / effective product, and he could choose to partner with any of the other networks but stays with SJP because he feels they offer his clients a decent option. He did suggest that there is an option for investing outside SJP via a DFM he sometimes works with, but when you add his fees to his not unreasonable 0.5% you're not saving THAT much. Unless my rounding of apparently small numbers is fooling me. He is well aware of all the bad press, and for every underperforming chart I showed him, he showed me am overperfoming one back. Or he showed me a disparity in how fund performance is measure between SJP and others (ef where the others are before costs and SJP was measured after coats) etc.

At heart I'm a pretty cynical, pessimistic kinda guy who thinks most people are pretty average at their work and that I can usually learn how to do stuff just as well myself. But - my gut instinct tells me he's a legitimate, hard working knowledgeable expert in his field who loves his work and is in no way a glorified SJP salesman. I consider myself a pretty good judge of character (albeit someone with low expectations) and I really wouldn't call myself gullible.

So how is there such a massive disconnect here? If I'm right and he is what I think he is, how can he be so confident in a company that so many people slate? How is it that when SJP poll their clients they [apparently] overwhelmingly respond positively? How is their AUM growing the way it is? I cannot believe this is simply due to mass hysteria or self-delusion or gullible people falling for shiny brochures and cheap tricks. I've spent 30 long hard years getting to the point where I have a shot at obtaining financial security, and there must be a decent proportion of SJP clients who have trodden the same path and are intelligent and seasoned enough to see through smoke and mirrors and make reasonably well informed judgements on people, companies and performance.

There's just something here that doesn't add up. And I cannot figure it out 🤷‍♂️

As for the the DIY approach - I'm the sort of person who has spent his whole life learning to do stuff other people often pay for, and would normally spend a week without sleep learning everything I can find online but I recognise that an experienced FA or IFA has a shed load of knowledge and decades of experience I do not have, just as my clients don't have the 30 years of experience I do in my field. Also the stakes are high - I only get one shot at this. So this is a case where I don't mind paying an expert for their skills. I just don't want to waste money, and as I said I fundamentally don't believe that (made up numbers) a £5M portfolio is 5x as complex or time consuming to manage as a £1M portfolio would be.

I think I've found someone I trust and would be happy to work with..... But he firmly believes SJP is the best option for me just as he thinks it is for his other clients.

Zadumbreion

Oh - also this:

GeoffTF

Zadumbreion said:

I was quoted all-inclusive fees of 1.8% with no entry charges or exit fees (we didn't discuss pensions yet for a couple of reasons) and when I started to look around  this didn't seem madly out of whack with the combined cost of an IFA (he gets 0.5%) and a separate investment manager / platform etc. His assertion is that SJP - in his experience over the long term - do usually outperform the benchmarks enough to cover their fees, which in the end is surely what it all boils down to.

As for the the DIY approach - I'm the sort of person who has spent his whole life learning to do stuff other people often pay for, and would normally spend a week without sleep learning everything I can find online but I recognise that an experienced FA or IFA has a shed load of knowledge and decades of experience I do not have, just as my clients don't have the 30 years of experience I do in my field. Also the stakes are high - I only get one shot at this. So this is a case where I don't mind paying an expert for their skills. I just don't want to waste money, and as I said I fundamentally don't believe that (made up numbers) a £5M portfolio is 5x as complex or time consuming to manage as a £1M portfolio would be.

You do not need thirty years experience to buy a cheap packaged tracker fund. Nobody can beat a tracker in risk adjusted terms except by chance. There is no extra value added by making things more complicated. Using your made up numbers, 1.8% of £5M is £90K per annum. It is worth a bit of work to save that.