Annual Review - Rebalancing and Changes to Investments Concerns

Linton

Deleted_User said:

One can certainly take lots of views but when looking at a 13 fund “conservative” portfolio which sinks like a stone and requires wholesale changing, a reasonable view would be “I am dealing with BS artist”.  Its not OK.  Someone’s retirement is at stake; and its not the advisors.   International and asset diversification can be easily achieved with a single cost-efficient fund from one of 3-4 highly reputable providers. The type of allocation which avoided nose bleeding losses in 2000, 2008, 2020 and 2022. And recovers quickly.   And one can stick with it rather than change annually. The future is uncertain but financial salesman’s BS is clear. 

I agree that the portfolio changes require justification at least to the OP if not to us.  However I would prefer to see that justification rather than jump to a conclusion purely on the basis of prejuidice.  Perhaps we could all learn something.

JohnWinder

Second line of the first post: ‘would appreciate any thoughts now’. We were served up a big fish in a little tank; we’re not letting this one get away. Lacking charity, perhaps.

[Deleted User]

Linton said:

Deleted_User said:

One can certainly take lots of views but when looking at a 13 fund “conservative” portfolio which sinks like a stone and requires wholesale changing, a reasonable view would be “I am dealing with BS artist”.  Its not OK.  Someone’s retirement is at stake; and its not the advisors.   International and asset diversification can be easily achieved with a single cost-efficient fund from one of 3-4 highly reputable providers. The type of allocation which avoided nose bleeding losses in 2000, 2008, 2020 and 2022. And recovers quickly.   And one can stick with it rather than change annually. The future is uncertain but financial salesman’s BS is clear. 

I agree that the portfolio changes require justification at least to the OP if not to us.  However I would prefer to see that justification rather than jump to a conclusion purely on the basis of prejuidice.  Perhaps we could all learn something.

Also, 25% reduction in the value of portfolio in drawdown requires justification when a balanced portfolio in sterling dropped 5%.  How much is being withdrawn? I am guessing its not 20%. Someone’s crystal ball is way, way off.  

GSP

I’m still trawling through the 5 attachments sent in my annual review.

Observations for now: (He uses ‘we’, but thought he acted alone?).
In the first attachment a paragraph reads “ However, our core view remains that the best antidote to short-term volatility is a resolute focus on long-term outcomes. We believe inflation is spiking and will reduce over the next couple of years as the effects of Covid and the Ukraine war (hopefully then finished) and supply line issues work through the system. We see little to be gained by excessive portfolio changes in the current market environment”.

Then in the third attachment, and draw you to the third paragraph.
” We are rationalising our use of passive index trackers, such that we use a single preferred tracker fund in each of the major sectors. Whilst tracker funds track the index and their performance is extremely similar to one another, there are small differences in both performance and charges, and so we now recommend passive tracker funds in a similar manner to managed funds and may recommend a swap.

• We have for some time, for most clients, been favouring the use of accumulation funds (where distributions are automatically reinvested in that fund) rather than income funds (where distributions are paid into the account). Many fund managers provide both versions of their funds. We prefer to use accumulation “acc” funds (where available), since we are now better able to manage the level of cash in the account, negating the need for natural income to pay cash into the account to cover charges. This should have a small positive effect on portfolios over time. Thus, we might exchange an “inc” version of a fund with its “acc” equivalent.

• We have noticed that different clients with similar needs and risk profiles may still have different funds in their portfolios. In such cases the funds are typically very similar in make-up, performance and ratings to one another, but nevertheless we feel we should centralise such portfolio choices where possible. So we might recommend you exchange a fund for this reason. As before, we will also from time-to-time recommend that you exchange funds where performance has been below- benchmark for too long.

• Additionally, and as has always been the case, we may recommend that you reduce significantly or drop a fund that resides in a sector where we are reducing exposure for strategic reasons.

In that third paragraph, the mention of ‘centralising’ portfolio choices. Whose benefit is that for? 

Plus the mention of exchanging funds where performance has been below benchmark for too long, who is to say these don’t suddenly ‘wake up’. Should I just dump these at this stage?

Still reading through and my asset allocation when putting the components suggest I’m 69% in Equities, 26% in Fixed Interest (which I assume is bonds), 4% money market and 1% others.
With someone 5 years into drawdown and with a 5 out of 10 risk rating, this seems to be too high in equities to me.
Obviously my fund is down most with these. If I want to change the proportion of Equities back to something less (what proportion is reasonable), am I just accepting a loss now?
My thinking would be is to do little at this stage, rather than chase in other funds.

Thanks

[Deleted User]

These are all motherhood statements in the mail-out.  Nothing specific to your situation. 

Your question on asset allocation is very important and can’t be answered without a lot more information.  70% equity does sound high based on what we know.  “Standard” portfolio is 60/40. Someone in withdrawal with enough funds may opt for 50/50.  A young person may opt for 100% equities.  You are the best person to answer this but you need to read up on on risks and options.  

Read the short Edwards book on UK pensions, read Bernstein’s book on Asset Allocation and the “Random Walk down the Wall Street”. Then pick asset allocation. The. buy a single diversified fund with the appropriate allocation at a cost of a latte for 10K. At most you need 2 funds. 

Linton

GSP said:

I’m still trawling through the 5 attachments sent in my annual review.

Observations for now: (He uses ‘we’, but thought he acted alone?).
In the first attachment a paragraph reads “ However, our core view remains that the best antidote to short-term volatility is a resolute focus on long-term outcomes. We believe inflation is spiking and will reduce over the next couple of years as the effects of Covid and the Ukraine war (hopefully then finished) and supply line issues work through the system. We see little to be gained by excessive portfolio changes in the current market environment”.

Then in the third attachment, and draw you to the third paragraph.
” We are rationalising our use of passive index trackers, such that we use a single preferred tracker fund in each of the major sectors. Whilst tracker funds track the index and their performance is extremely similar to one another, there are small differences in both performance and charges, and so we now recommend passive tracker funds in a similar manner to managed funds and may recommend a swap.

• We have for some time, for most clients, been favouring the use of accumulation funds (where distributions are automatically reinvested in that fund) rather than income funds (where distributions are paid into the account). Many fund managers provide both versions of their funds. We prefer to use accumulation “acc” funds (where available), since we are now better able to manage the level of cash in the account, negating the need for natural income to pay cash into the account to cover charges. This should have a small positive effect on portfolios over time. Thus, we might exchange an “inc” version of a fund with its “acc” equivalent.

• We have noticed that different clients with similar needs and risk profiles may still have different funds in their portfolios. In such cases the funds are typically very similar in make-up, performance and ratings to one another, but nevertheless we feel we should centralise such portfolio choices where possible. So we might recommend you exchange a fund for this reason. As before, we will also from time-to-time recommend that you exchange funds where performance has been below- benchmark for too long.

• Additionally, and as has always been the case, we may recommend that you reduce significantly or drop a fund that resides in a sector where we are reducing exposure for strategic reasons.

In that third paragraph, the mention of ‘centralising’ portfolio choices. Whose benefit is that for? 

Plus the mention of exchanging funds where performance has been below benchmark for too long, who is to say these don’t suddenly ‘wake up’. Should I just dump these at this stage?

Still reading through and my asset allocation when putting the components suggest I’m 69% in Equities, 26% in Fixed Interest (which I assume is bonds), 4% money market and 1% others.
With someone 5 years into drawdown and with a 5 out of 10 risk rating, this seems to be too high in equities to me.
Obviously my fund is down most with these. If I want to change the proportion of Equities back to something less (what proportion is reasonable), am I just accepting a loss now?
My thinking would be is to do little at this stage, rather than chase in other funds.

Thanks

Most of this sounds like minor house-keeping rather than the complete change in strategy some people may have been assuming.  

Centralising choices of specific funds whith very similar characteristics is primarily for their benefit though perhaps reducing the number of investments they have to monitor may have minor cost benefits to you in the long term.  I dont see it is a major issue, neither do I see any particular downside for yourself.

Changing funds following poor performance may be appropriate if the fund is no longer meeting the objectives which led to it being chosen in the first place or its choice of underlying investments causes concerns.  Woodford provides one example.  But you dont change funds purely because of poor performance - that is often the result simply of the sectors/countries in which the fund invests.  If you want to include those parts of the market you have to accept whatever happens.

Your concerns regardng the % equities should be raised with the advisor.  The appropriate allocations is not simply a matter of you scored 5 in the questionaire therefore you should be 53% invested in equities.  It will also be based on things like your specific requirements, investment timeframe and flexibility.

dunstonh

Observations for now: (He uses ‘we’, but thought he acted alone?).

No IFA acts alone.   Indeed, it is possible that that the documents are not written by your IFA.

” We are rationalising our use of passive index trackers, such that we use a single preferred tracker fund in each of the major sectors. Whilst tracker funds track the index and their performance is extremely similar to one another, there are small differences in both performance and charges, and so we now recommend passive tracker funds in a similar manner to managed funds and may recommend a swap.

That is an increasingly common trend.

• We have for some time, for most clients, been favouring the use of accumulation funds (where distributions are automatically reinvested in that fund) rather than income funds (where distributions are paid into the account). Many fund managers provide both versions of their funds. We prefer to use accumulation “acc” funds (where available), since we are now better able to manage the level of cash in the account, negating the need for natural income to pay cash into the account to cover charges. This should have a small positive effect on portfolios over time. Thus, we might exchange an “inc” version of a fund with its “acc” equivalent.

Each to their own.  Its the opposite of what I do but there is no right or wrong here.  

We have noticed that different clients with similar needs and risk profiles may still have different funds in their portfolios. In such cases the funds are typically very similar in make-up, performance and ratings to one another, but nevertheless we feel we should centralise such portfolio choices where possible. So we might recommend you exchange a fund for this reason. As before, we will also from time-to-time recommend that you exchange funds where performance has been below- benchmark for too long.

This is due to increasing regulation and in line with expectation.

• Additionally, and as has always been the case, we may recommend that you reduce significantly or drop a fund that resides in a sector where we are reducing exposure for strategic reasons.

Normal for rebalancing a portfolio.  If you tug in one direction, you need to compensate in others.

In that third paragraph, the mention of ‘centralising’ portfolio choices. Whose benefit is that for? 

The FCA would say the consumer.      

Plus the mention of exchanging funds where performance has been below benchmark for too long, who is to say these don’t suddenly ‘wake up’. Should I just dump these at this stage?

Judgement call.   You cant tell in advance.

Still reading through and my asset allocation when putting the components suggest I’m 69% in Equities, 26% in Fixed Interest (which I assume is bonds), 4% money market and 1% others.
With someone 5 years into drawdown and with a 5 out of 10 risk rating, this seems to be too high in equities to me.

Without knowing the underlying funds, 69% would be consistent with medium risk and very typical for someone in drawdown.

Why do you feel it is too high in risk?

Obviously my fund is down most with these. If I want to change the proportion of Equities back to something less (what proportion is reasonable), am I just accepting a loss now?

You haven't mentioned what your current level is versus what you would choose it to be.    With equities and fixed interest securities down, you are not really accepting a loss.   

My thinking would be is to do little at this stage, rather than chase in other funds.

Why do you have an adviser when you feel your knowledge and opinion is better?  (said with a nicer tone than it appears in text)

GSP

dunstonh said:

My thinking would be is to do little at this stage, rather than chase in other funds.

Why do you have an adviser when you feel your knowledge and opinion is better?  (said with a nicer tone than it appears in text)

He wrote to me and other clients earlier on in the year when markets were falling and basically said himself sit tight, don’t panic Mr Mainwaring, ‘hopefully’ the war would end etc. The basic message was keep calm, which I took as doing little or nothing as the investments in my portfolio were still solid, perhaps?

GSP

dunstonh said:

Overall my fund is down 25% on last year and within there individual investments are down anywhere between 10% to 50%. Last year, he recommended much less cash and I instructed him to change so I had a year’s cash buffer. I’m glad I did!

What is the drawdown strategy?  I prefer 36 months of cash with income units feeding into the cash.  Others may prefer 24 months.  Some dont run any cash and sell on demand.

There is no drawdown strategy as far as I am aware. I request a sum of cash usually 3 times a year and he rebalances all the investments back to their % as per the last review.
He said in the past it’s best to keep as much invested in non cash as possible.

GSP

JohnWinder said:

A professional changing 13 funds is either a genius getting you better than market returns, a dope out of his depth flailing around, or trying to convince you it’s so complicated you need him. Which has it been, and more importantly which will it be when your investments are no longer needed? If i’ve missed a couple of ‘eithers’ let me know. And if he thinks you’re better off with 16 funds than 3 which you never have to change, get him on here to explain why, or find out from him and report back to us.

What 3 funds would you suggest John, and what % in equities, bonds etc.
Thanks