Wealth management performance and charges

JonathanGavin

I started this thread thinking that, like most forums, I'd be lucky if I got any decent responses worth reading.
I would like to thank all who have commented, on their very informative and helpful data and ideas.
This is a new and exciting era for me.
Keep well. 

dunstonh

GeoffTF said:

Thrugelmir said:

GeoffTF said:

Thrugelmir 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.

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. 

They certainly should not pick an actively managed fund. That is a mugs game. Vanguard LifeStrategy will do. If they pick a fund whose equity component differs markedly from the global index, they could significantly over or under perform. They are more blindfolded if they go to an FA, and the FA will not offer any guarantee that he will beat the index, even before costs.

VLS is an actively managed portfolio. Nor is there one definitive global index. Benchmarks are made man made creations. 

I'm not recommending an active fund either. I'm highlighting the challenges that lies ahead. A decade ago it was the 60/40 portfolio. More recently it's a global index. At the end of the next decade it will be something else that's the talk of the social media forums. Behind every trade there's a story and all trades eventually cease to be effective. 

I do not believe it is accurate to call VLS a managed fund. Vanguard has a committee which meets periodically to decide its composition. They made material changes on one occasion. Their decisions appear to be influenced mostly by what they think will sell, rather than what they think will do well.

The 60 / 40 portfolio is alive and well. I have one myself. The market portfolio dates back to the 1960s, and notably CAPM. A global tracker just is the equity part of the market portfolio. There is nothing new there.

It wouldn't be accurate to refer to it as passive either due to the level of active decisions made.    In the industry, they are often referred to as active passives.

coyrls

dunstonh said:

GeoffTF said:

Thrugelmir said:

GeoffTF said:

Thrugelmir 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.

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. 

They certainly should not pick an actively managed fund. That is a mugs game. Vanguard LifeStrategy will do. If they pick a fund whose equity component differs markedly from the global index, they could significantly over or under perform. They are more blindfolded if they go to an FA, and the FA will not offer any guarantee that he will beat the index, even before costs.

VLS is an actively managed portfolio. Nor is there one definitive global index. Benchmarks are made man made creations. 

I'm not recommending an active fund either. I'm highlighting the challenges that lies ahead. A decade ago it was the 60/40 portfolio. More recently it's a global index. At the end of the next decade it will be something else that's the talk of the social media forums. Behind every trade there's a story and all trades eventually cease to be effective. 

I do not believe it is accurate to call VLS a managed fund. Vanguard has a committee which meets periodically to decide its composition. They made material changes on one occasion. Their decisions appear to be influenced mostly by what they think will sell, rather than what they think will do well.

The 60 / 40 portfolio is alive and well. I have one myself. The market portfolio dates back to the 1960s, and notably CAPM. A global tracker just is the equity part of the market portfolio. There is nothing new there.

It wouldn't be accurate to refer to it as passive either due to the level of active decisions made.    In the industry, they are often referred to as active passives.

I guess closet index trackers are referred to as passive actives?

Thrugelmir

GeoffTF said:

Thrugelmir said:

GeoffTF said:

Thrugelmir 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.

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. 

They certainly should not pick an actively managed fund. That is a mugs game. Vanguard LifeStrategy will do. If they pick a fund whose equity component differs markedly from the global index, they could significantly over or under perform. They are more blindfolded if they go to an FA, and the FA will not offer any guarantee that he will beat the index, even before costs.

VLS is an actively managed portfolio. Nor is there one definitive global index. Benchmarks are made man made creations. 

I'm not recommending an active fund either. I'm highlighting the challenges that lies ahead. A decade ago it was the 60/40 portfolio. More recently it's a global index. At the end of the next decade it will be something else that's the talk of the social media forums. Behind every trade there's a story and all trades eventually cease to be effective. 

I do not believe it is accurate to call VLS a managed fund. Vanguard has a committee which meets periodically to decide its composition. They made material changes on one occasion. Their decisions appear to be influenced mostly by what they think will sell, rather than what they think will do well.

The 60 / 40 portfolio is alive and well. I have one myself. The market portfolio dates back to the 1960s, and notably CAPM. A global tracker just is the equity part of the market portfolio. There is nothing new there.

Whichever way you talk up Vanguard their funds aren't top of the class. Other fund managers make better investment decisons. More tellingly and rather conveniently Vanguard do not benchmark the VLS range. Which makes direct performance comparisons impossible. 

Onus is on every investor to do their own research and understand what they are invested in. While the 60/40 portfolio may well have been a suitable vehicle during past market cycles. The flaws at the current time in the strategy are very apparent. 

Global index trackers are just one collective vehicle of many. Global equity markets are diverse and broad. With thousands of individual companies that can be invested in. Same as my comment above. Different funds will perform better in different market cycles. 

There's certainly nothing new. The one thing I never use is hindsight to justify my investment choices (even to myself). Assuming that what worked previously, will work tomorrow amounts to little more than a smug complacency. While the market cannot be timed. A combination of events can lead to predictability and overall direction of travel. 

Thrugelmir

JonathanGavin said:

I started this thread thinking that, like most forums, I'd be lucky if I got any decent responses worth reading.
I would like to thank all who have commented, on their very informative and helpful data and ideas.
This is a new and exciting era for me.
Keep well. 

My gut instinct is telling me that the era that lies ahead is going to be both new and exciting. Putting aside the issue of whether IFA charges are reasonable.  A lot of criticism directed at them. Eminates from the perspective that investing and making money is easy, and therefore what value do IFA's add. To me it's no different to engaging a solicitor in a specialist field, i.e employment, company or family law.  I could read and research for hours and hours. Instead I prefer to use my time for what I do best. 

JonathanGavin

Thrugelmir said:

JonathanGavin said:

I started this thread thinking that, like most forums, I'd be lucky if I got any decent responses worth reading.
I would like to thank all who have commented, on their very informative and helpful data and ideas.
This is a new and exciting era for me.
Keep well. 

My gut instinct is telling me that the era that lies ahead is going to be both new and exciting. Putting aside the issue of whether IFA charges are reasonable.  A lot of criticism directed at them. Eminates from the perspective that investing and making money is easy, and therefore what value do IFA's add. To me it's no different to engaging a solicitor in a specialist field, i.e employment, company or family law.  I could read and research for hours and hours. Instead I prefer to use my time for what I do best. 

Yes indeed, I've always used that philosophy in life.

Zadumbreion

Audaxer said:

It's interesting to read what @Zadumbreion says as I've not heard many people that are happy with SJP, especially when they realise the amount they are paying in fees. However as he has £5m to invest he can probably comfortably afford to pay these high fees if he cannot find a suitable IFA or does not wish to manage such a large amount himself. 

For the record it's not £5M, that was chosen to make a point. It's slightly under £2.4M. that being said if it was £5M I'd be even less happy with the fixed percentage approach!

I think what is all boils down to is:

Does the fund manager provide enough additional growth and / or lower risk to justify the charges, however high or low they may be.

There doesn't seem to be compelling evidence for me that SJP does, so that leaves the certainty of fees but potentially no benefit.

GeoffTF

Thrugelmir said:
Whichever way you talk up Vanguard their funds aren't top of the class. Other fund managers make better investment decisons. 

Do you have any evidence that Vanguard is an incompetent manager of index funds?

Thrugelmir said:
More tellingly and rather conveniently Vanguard do not benchmark the VLS range. Which makes direct performance comparisons impossible. 

Why should they? They give the composition of the funds. You can make performance comparisons if you wish, but they tell us nothing about the future.

Thrugelmir said:
Onus is on every investor to do their own research and understand what they are invested in. While the 60/40 portfolio may well have been a suitable vehicle during past market cycles. The flaws at the current time in the strategy are very apparent.

What flaws?

Thrugelmir said:
Global index trackers are just one collective vehicle of many. Global equity markets are diverse and broad. With thousands of individual companies that can be invested in. Same as my comment above. Different funds will perform better in different market cycles. 

There's certainly nothing new. The one thing I never use is hindsight to justify my investment choices (even to myself). Assuming that what worked previously, will work tomorrow amounts to little more than a smug complacency. While the market cannot be timed. A combination of events can lead to predictability and overall direction of travel. 

Before cost and taxes, the average performance of all the funds in the world will always be the global index. After costs and taxes, most managed funds will always under-perform the global index. They are mathematical facts. There is no hindsight here

GeoffTF

Zadumbreion said:

Audaxer said:

It's interesting to read what @Zadumbreion says as I've not heard many people that are happy with SJP, especially when they realise the amount they are paying in fees. However as he has £5m to invest he can probably comfortably afford to pay these high fees if he cannot find a suitable IFA or does not wish to manage such a large amount himself. 

For the record it's not £5M, that was chosen to make a point. It's slightly under £2.4M. that being said if it was £5M I'd be even less happy with the fixed percentage approach!

I think what is all boils down to is:

Does the fund manager provide enough additional growth and / or lower risk to justify the charges, however high or low they may be.

There doesn't seem to be compelling evidence for me that SJP does, so that leaves the certainty of fees but potentially no benefit.

If you are not happy with the fixed percentage approach, why do you not negotiate a flat fee?

The FA cannot provide any additional growth or lower risk for the same growth. My understanding is that any FA who claimed that would be in breach of the FCA rules.

https://www.youtube.com/watch?v=SwkjqGd8NC4

Cus

@GeoffTF your comment earlier:

"Nobody can beat a tracker in risk adjusted terms except by chance."

Forgive me, trying to understand. Are you saying that any active fund must be increasing risk to purposefully beat it's index?