Wealth management performance and charges

dales1

Zad

See page 2 of this thread.

BostonE explains that SJP have earned the OP less than 1.75% pa over 5 long years (whilst the global stock market.was booming, say 12% pa).

Very, very poor returns; in fact close to cash.

You say the salesman believes in his own firm; well he would, wouldn't he !

Zadumbreion

GeoffTF said:

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.

Agreed, and that's why I hate the percentage approach, but I don't believe anyone's cheap tracker performance over the last 8 years really means anything because S&P500. How will the cheap trackers fare if the next few years are "interesting"?

grumiofoundation

Zadumbreion said:

GeoffTF said:

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.

Agreed, and that's why I hate the percentage approach, but I don't believe anyone's cheap tracker performance over the last 8 years really means anything because S&P500. How will the cheap trackers fare if the next few years are "interesting"?

How will SJPs funds fate if the next few years are “interesting?” 

Answer - there is no guarantee SJP will outperform a cheap tracker over the next few years, let alone outperform by >1.5% which is what is needed to simply cover SJP fees. 

Zadumbreion

dales1 said:

Zad

See page 2 of this thread.

BostonE explains that SJP have earned the OP less than 1.75% pa over 5 long years (whilst the global stock market.was booming, say 12% pa).

Very, very poor returns; in fact close to cash.

You say the salesman believes in his own firm; well he would, wouldn't he !

I did read that. The point I was trying to make was that I don't get the feeling this chap is like that. I could be wrong, of course, but my radar was telling me he was genuinely motivated to look after his clients.

The other thought I had which supports the DIY approach is that to a large extent it doesn't really matter which funds you look at, they all have the same flipping shape! I think his argument would be yes the basic shape is the same but the degree of the relative rises and falls is different, and with good fund management the falls will be smaller.

Also I wondered if perhaps the reason so many sjp clients are happy is that when their investments have been rising 7%+ in an extended bull market they don't really care about a 2% charge? Except the answer I'll get is no doubt "that's not it, because your average SJP client won't have seen a 7% rise" 😄

Zadumbreion

grumiofoundation said:

Zadumbreion said:

GeoffTF said:

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.

Agreed, and that's why I hate the percentage approach, but I don't believe anyone's cheap tracker performance over the last 8 years really means anything because S&P500. How will the cheap trackers fare if the next few years are "interesting"?

How will SJPs funds fate if the next few years are “interesting?” 

Answer - there is no guarantee SJP will outperform a cheap tracker over the next few years, let alone outperform by >1.5% which is what is needed to simply cover SJP fees. 

A very fair point. I should say that a couple of days ago I had told my other half "I'm sorry but there's just no way we're spending tens of thousands on management fees when our circumstances are so simple, we'll just grab some Vanguard stuff and ride with it".

But I went back to him because I think he does have plenty to offer in terms of tax advice, wrappers, allowances etc etc a lot of which has consequences down the line. Not rocket science, and bog standard stuff for FAs and IFAs but not knowledge I posess at this stage. I don't mind paying for that knowledge but is it worth 5 figures a year? I'm not convinced it is for a simple case like ours.

Zadumbreion

Balls. I'm going to have to dive in and get my hands dirty aren't I. And ask loads of dumb questions in forums. 😜

Anyway apologies to the OP for the mini hijack. It felt relevant because SJP.

OldMusicGuy

Zadumbreion said:

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.

The thing that doesn't add up, and that makes SJP a really poor choice in my opinion is the lack of fund choices available. If you only have one shot at this (as you say), why restrict your choice of investments so massively? An IFA has access to so many more options than an SJP adviser.

Like many people, I think you misjudge what advisers do. They are not investment managers, they do not have deep skills in understanding what is going on in the global economy. They have no secret sauce about how to invest "better" than you or I. What they do know about is what investment options are out there and how they might best fit to a person's investment objectives and risk tolerance. They cannot get you "better" performance. If they can, why don't they guarantee it in their pricing? In his opinion (he is selling to you) of course their funds perform better than some unspecified benchmark. Look at the actual evidence and you may find otherwise.

You say you can learn to do stuff that people pay for, so why not do it for one of the most important aspects of your life? I did, many other people on here have done as well. You can keep things simple or make them as complex as you want. You don't need specialist skills or knowledge but you do need some basic understanding of financial matters. Start with books like "DIY Simple Investing: A Guide to Simple but Effective Low Cost Investing" by John Edwards and "Investing Demystified" by Lars Kroijer. Watch videos on the Pensioncraft Youtube channel - Ramin on there will give you FOR FREE a far better understanding of what is going on in the global economy and the world of investing than any IFA or SJP adviser.

Thrugelmir

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 Bostonerimus pays in the US?? 
What am I missing here? 

  

@Cus Payment for order flow

Banned in the UK. 

Couple of links for you. 

https://www.investopedia.com/terms/p/paymentoforderflow.asp

https://www.barrons.com/articles/robinhood-payment-for-order-flow-51630451893

Zadumbreion

OldMusicGuy said:.

The thing that doesn't add up, and that makes SJP a really poor choice in my opinion is the lack of fund choices available. If you only have one shot at this (as you say), why restrict your choice of investments so massively? An IFA has access to so many more options than an SJP adviser.

Like many people, I think you misjudge what advisers do. They are not investment managers, they do not have deep skills in understanding what is going on in the global economy. They have no secret sauce about how to invest "better" than you or I. What they do know about is what investment options are out there and how they might best fit to a person's investment objectives and risk tolerance. They cannot get you "better" performance. If they can, why don't they guarantee it in their pricing? In his opinion (he is selling to you) of course their funds perform better than some unspecified benchmark. Look at the actual evidence and you may find otherwise.

You say you can learn to do stuff that people pay for, so why not do it for one of the most important aspects of your life? I did, many other people on here have done as well. You can keep things simple or make them as complex as you want. You don't need specialist skills or knowledge but you do need some basic understanding of financial matters. Start with books like "DIY Simple Investing: A Guide to Simple but Effective Low Cost Investing" by John Edwards and "Investing Demystified" by Lars Kroijer. Watch videos on the Pensioncraft Youtube channel - Ramin on there will give you FOR FREE a far better understanding of what is going on in the global economy and the world of investing than any IFA or SJP adviser.

I've just downloaded "DIY Simple Investing: A Guide to Simple but Effective Low Cost Investing" by John Edwards" and I'm reading it right now 🙂

Thrugelmir

GeoffTF said:

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.

Now that the current trade is ending. Which "passive tracker" or actively managed multi asset fund are all these more recent DIY investors going to select. For them it's going to feel like they've been blindfolded and left in the middle of a desert without a compass. Volatile markets may well be with us for some time. Returns are going to differ widely depending upon the route choosen.